The Size of the Crowding-Out Effect, Affecting the Size of the Government

question 51

Essay

The size of the crowding-out effect, affecting the size of the government spending multiplier, depends on two things. Explain what those are.

---

Definitions:

Factory Overhead

The indirect costs associated with manufacturing, including indirect labor, indirect materials, and other expenses that cannot be directly tied to the production of goods.

Indirect Material

Items used in the production process that do not become a part of the final product, such as lubricants for machines.

Direct Materials

Raw materials that are directly traceable to the production of a specific product and are a significant component of manufacturing expenses.

Nonmanufacturing Cost

Expenses that are not directly associated with the production of goods, including selling, general, and administrative expenses.