The magnitude of the crowding-out effect caused by government spending depends on: 1. The interest sensitivity (elasticity) of private spending/investment demand2. The sensitivity of interest rates to changes in money demand and output

Given below are two statements: Assertion (A): A higher fiscal deficit can stimulate economic growth during recession. Reason (R): Fiscal expansion increases aggregate demand through multiplier effect. Choose the correct answer:

Which of the following statements are correct regarding the Ricardo-Barro equivalence effect? 1. Taxpayers save in anticipation of future taxes, which tends to offset debt-financed government spending. 2. When a government tries to stimulate the economy by increasing debt-financed spending, aggregate demand remains largely unchanged. 3. Deficit spending by government permanently increases aggregate demand.