The fallacy in the strict crowding-out argument comes from supposing that
A)the Federal Reserve always accommodates the U.S.Treasury in its financing of the deficit.
B)corporations always outbid small businesses for government contracts.
C)the economy's flow of saving is fixed.
D)investors will spend more when G increases.

Question

Quizplus · Accepted Answer

The fallacy in the strict crowding-out argument is that it assumes that the economy's flow of saving is fixed, meaning that an increase in government spending will lead to an equal decrease in private investment. However, this assumption is not true as the flow of saving can change due to various factors. For example, an increase in government spending may stimulate economic growth, leading to an increase in private investment and savings. Therefore, the strict crowding-out argument is an oversimplification of the relationship between government spending and private investment.

The Fallacy in the Strict Crowding-Out Argument Comes from Supposing