A decrease in the share of government purchases will ____ the share of GDP available for nongovernment purchases and ____ the interest rate in the long run.
A)increase; increase
B)increase; have no effect on
C)increase; decrease
D)decrease; decrease
E)decrease; increase

Question

Quizplus · Accepted Answer

A decrease in the share of government purchases frees up more resources for nongovernment purchases, increasing the share of GDP available for them. In the long run, this decrease in government demand for funds can lead to lower interest rates as there is less competition for borrowing.

A Decrease in the Share of Government Purchases Will ____