-Refer to Figure 9-6.Starting from a balanced budget,the government runs a budget deficit of $200 billion.Investment spending will

Question

Quizplus · Accepted Answer

When the government runs a budget deficit, it often borrows from the financial markets, which can lead to higher interest rates. Higher interest rates can crowd out private investment, leading to a decrease in investment spending. The decrease is typically less than the full amount of the deficit due to partial crowding out, hence a decrease by $100 billion is a plausible outcome.