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) decreas.
E) decreas

Question

Quizplus · Accepted Answer

A decrease in the share of government purchases means that there will be more resources available for nongovernment purchases, which will increase the share of GDP available for nongovernment purchases. This will lead to an increase in demand for credit, which will increase the interest rate in the long run. Therefore, a decrease in the share of government purchases will increase the share of GDP available for nongovernment purchases and decrease the interest rate in the long run.

A Decrease in the Share of Government Purchases Will ____