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Posted 2 months ago

Under which circumstance is crowding out most likely to be a concern?

Choose 1 answer:
(A) When there is deflation
(B) When an economy is operating near full employment
(c) When an economy has a current rate of unemployment that is higher than the natural rate
(D) When an economy is experiencing a severe recession
(E) When an economy can produce additional savings easily
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Answer from Sia
Posted 2 months ago
Solution by Steps
step 1
Identify the economic scenario where crowding out is most likely to occur. Crowding out typically happens when government spending displaces private investment
step 2
Analyze the options given in the context of crowding out. Crowding out is more likely when the economy is at or near full capacity, meaning there is little room for additional investment without affecting existing private investment
step 3
Determine which option corresponds to an economy operating at or near full capacity. Among the given options, full employment suggests an economy operating at full capacity
Key Concept
Crowding out effect
Crowding out is most likely to occur when an economy is operating near full employment, as government borrowing to finance its spending can lead to higher interest rates, which in turn can reduce private investment.

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