Which one of the following statements is NOT true?
A)Expansionary fiscal policy is employed to offset recessionary gaps.
B)Expansionary fiscal policy has an effect on interest rates.
C)Crowding out dilutes the effect of expansionary fiscal policy.
D)When crowding out occurs, fiscal policy is more effective.

Question

Quizplus · Accepted Answer

When crowding out occurs, it means that government borrowing is competing with private borrowing for funds, which drives up interest rates and decreases the effectiveness of expansionary fiscal policy. Therefore, statement D is not correct as it claims that fiscal policy is more effective when crowding out occurs.

Which One of the Following Statements Is NOT True