For a given level of private saving, a decrease in the government's budget deficit the long- run rate of economic growth.

Question

Quizplus · Accepted Answer

When the government's budget deficit decreases, there is less competition for funds in the financial market, which will reduce interest rates. Lower interest rates encourage private investment, which will lead to an increase in the long-run rate of economic growth. Therefore, a decrease in the government's budget deficit will increase the long-run rate of economic growth.

For a Given Level of Private Saving, a Decrease in the Government's