Question

Assume that if there were no crowding out, an increase in government spending would increase gdp by $100 billion. if there had been partial crowding out, however, then gdp would have:__________

Answer 1

increased by less than $100 billion.

According to the crowding-out effect of expansionary fiscal policy, when the economy is operating at full capacity, a rise in additional public sector spending results in a decrease in private sector spending. Tax increases and bond borrowings are the two main ways that the government pays for spending.

The decrease in private sector investments brought on by higher public sector spending is explained by the crowding-out effect. This means that when a country's economy is operating at capacity, increasing government spending could hurt the private sector. Government spending that exceeds normal levels can lead to an increase in indebtedness on the part of the government.

Learn more about crowding-out here:

brainly.com/question/19130317

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