Answer:
Those economists who argue that a significant amount of crowding out exists believe that the impact of expansionary fiscal policy will be ______reduced________ by the crowding out. Their reasoning is that if the government increases purchases, and finances that spending by borrowing money, spending in the private sector will _____decrease_______, leading ultimately to ______decrease______ in aggregate demand.
Explanation:
When a large government, like the U.S., increases its borrowing, it can set in motion a chain reaction of events triggering the curtailment of private sector spending. When this happens, economists describe it as a crowding-out effect. With such large borrowing by the government, the capital market is suffocated, leading to increased interest rates and less private investments.
