10. Crowding out effect

Suppose economists observe that an increase in government spending of $11 billion raises the total demand for goods and services by $44 billion.

If these economists ignore the possibility of crowding out, they would estimate the marginal propensity to consume (MPC) to be 3/4, 1/4, or 4.

Now suppose the economists allow for crowding out.

Their new estimate of the MPC would be Larger/ Smallerthan their initial one.