In a normal IS-LM framework, crowding out may be avoided if
A)banks ration credit
B)the government matches a tax increase with an increase in government purchases
C)the central bank increases the money supply to accommodate fiscal expansion
D)the central bank sells government bonds on a large scale
E)both C and D

Question

Quizplus · Accepted Answer

Crowding out can be avoided if the central bank increases the money supply to accommodate fiscal expansion, as this action can offset the upward pressure on interest rates that typically results from increased government spending.

In a Normal IS-LM Framework, Crowding Out May Be Avoided