If the government share of GDP equals 25 percent of GDP and the nongovernment share of GDP equals 80 percent of GDP,then
A)interest rates will increase until the government share of GDP declines to 20 percent.
B)nothing will happen unless the government reduces its share of purchases.
C)interest rates will decrease,resulting in a decrease in the investment,consumption,and net export shares.
D)interest rates will increase,resulting in a decline in the investment,consumption,and net export shares.
E)GDP will increase,shrinking each share until the sum of all shares equals 1.

Question

Quizplus · Accepted Answer

When the government's share of GDP is higher, it means that the government is spending more and this can result in a crowding out effect where there is less money available for private investment, consumption, and net exports. This in turn can lead to higher interest rates. Therefore, if the government share of GDP is 25 percent and the nongovernment share is 80 percent, interest rates are likely to increase, leading to a decline in investment, consumption, and net export shares. The best choice is D.

If the Government Share of GDP Equals 25 Percent of GDP