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    Question

    src="https://www.ixambee.com/questionimage/RBI-Gr-B-DEPR-Paper-I/1725429555-RBIDEPR-10.JPG" alt="" />
    A Both1 & 4 Correct Answer Incorrect Answer
    B Only 3 Correct Answer Incorrect Answer
    C Both 2 & 3 Correct Answer Incorrect Answer
    D Only 2 Correct Answer Incorrect Answer

    Solution

    Crowding out will not happen if KM is horizontal (Liquidity trap) and when money supply is adjustable, if there is increase in government spending, there is will be rightward shift of IS curve. If money supply also changes and the shift of LM is exactly equals to shift of IS curve then there is no crowding out.

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