The expansionary fiscal policy, such as the government spending increase. In reality the effectiveness of such...

The expansionary fiscal policy, such as the government spending increase. In reality the effectiveness of such an expansionary fiscal policy will likely be limited by numerous factors because of the crowding-out effect. As you may be aware, Fed has kept the interest rate at its lower bound, i.e., close to zero, and in this situation the LM curve becomes completely flat. Use the IS-LM framework to explain whether the government spending increase becomes more or less effective in this particular situation.

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Rahul Sunny answered 1 year ago

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