What Is "Crowding Out"? Why Is It Important in Discussions

question 127

Essay

What is "crowding out"? Why is it important in discussions of fiscal policy? Use an appropriate diagram to illustrate your answer.

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Definitions:

Income Elasticity of Demand

A measure of how much the quantity demanded of a good changes in response to a change in consumers' income.

Normal Good

A type of good for which demand increases as the income of consumers increases, showing a positive relationship between income and demand.

Sellers

Individuals or entities that offer goods or services for sale in the market.

Output

The total amount of goods or services produced by a company or industry over a specific period.