Which of the following attributes of the recession of 2008-2009 is most supportive of the Keynesian view that the crowding-out effect will be minimal during a severe recession?
A) the immediate increase in output and employment generated by the budget deficits of 2008-2009
B) the decline in the general level of prices during 2009
C) short-term interest rates falling to near zero, despite growing budget deficits during 2008-2009
D) short-term interest rates falling to near zero, as the budget deficit declined during 2008-2009

Question

Quizplus · Accepted Answer

During a severe recession, Keynesians argue that the crowding-out effect is minimal because interest rates are low, which was the case during 2008-2009 despite growing budget deficits.

Which of the Following Attributes of the Recession of 2008-2009