'Crowding Out' of Gross Private Investment (effect of deficit spending) – Assume Expansionary Fiscal Policy (G↑ and/or T↓.: government budget moves toward deficit) deficit spending.: D LF → or S LF ←.: r%↑.: I G ↓ (partially or completely offsets intended increase in AD) 'Crowding In' of Gross Private Investment (effect of budget surplus) – Assume Contractionary Fiscal Policy (G↓ and/or T ↑.: government budget moves toward surplus) budget surplus.: D LF ← or S LF →.: r% ↓.: I G ↑ (partially or completely offsets intended decrease in AD) Expansionary Fiscal Policy Net Export Effect (counters policy) – Assume Expansionary Fiscal Policy (G↑ and/or T↓.: government budget moves toward deficit) deficit spending.: D LF → or S LF ←.: r%↑.: D $ →.: $↑.: U.S.
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