APFIVE Crowding Out and Capital Mobility
A developing economy with limited access to international capital markets implements a large fiscal stimulus. Compared to an open economy with perfect capital mobility, the crowding out effect will likely be:
A
Nonexistent as domestic saving will automatically increase
B
Reversed, leading to crowding in of private investment
C
More severe due to the limited supply of loanable funds
D
Less severe due to excess capacity in the financial system
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