The situation in which expansionary fiscal policy does not lead to a rise in aggregate output is referred to as
A)fiscal neutrality.
B)a recession.
C)complete crowding out.
D)inflation.

Question

Quizplus · Accepted Answer

Complete crowding out occurs when the increase in government spending is offset by a decrease in private sector spending or an increase in interest rates, resulting in no change in aggregate output. This can happen when the government borrows a large amount of money to finance the spending, which can compete with private investment and increase interest rates, leading to a decrease in private spending.

The Situation in Which Expansionary Fiscal Policy Does Not Lead