If the crowding-out effect is complete and the marginal propensity to save is 0.1, then an increase in government spending of $400 billion will generate how much more real GDP?
A) $0
B) $40 billion
C) $100 billion
D) $400 billion

Question

Quizplus · Accepted Answer

If the crowding-out effect is complete, the increase in government spending will be fully offset by a decrease in private investment. Therefore, there will be no increase in real GDP. The marginal propensity to save is irrelevant in this scenario.

If the Crowding-Out Effect Is Complete and the Marginal Propensity