According to a 2009 article in The Economist,the multiplier effect and crowding-out effect would exactly offset each other when the economy is
A)operating at full capacity.
B)in recession.
C)experiencing zero inflation.
D)experiencing high rates of inflation.

Question

Quizplus · Accepted Answer

When an economy is operating at full capacity, there is little room for extra production, so the multiplier effect of increased government spending is likely to be countered by the crowding-out effect, where the increased demand for resources leads to higher prices and interest rates that reduce private investment. Therefore, in such a scenario, the two effects would cancel out each other, and there would be no significant impact on the overall level of economic activity.

According to a 2009 Article in the Economist,the Multiplier Effect