The Risk of Crowding Out Is Greater the Closer the Economy

question 64

True/False

The risk of crowding out is greater the closer the economy is to full employment.
If the economy were operating at full employment,crowding out would be inevitable.At full employment,we would be on the production possibilities curve,using all available resources.Therefore,additional government purchases can occur only if private sector purchases are reduced.In real terms,crowding out implies less private sector output.If the economy is in recession,it is possible to get more public sector output (like highways,schools,or defense)without cutbacks in private sector output.

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