Is ‘lay spread out’ a correct expression? eg. The villages lay spread out...
Is ‘lay spread out’ a correct expression in English? If so, what's the grammar of it? Is ‘spread’ here a past participle or can we take ‘spread out’ as a whole here and think of it as some adjective?

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Yes, 'lay spread out' is correct.

'spread out' is a phrasal verb and 'spread out' is also the past participle form of it.

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