An increase in government spending can reduce real GDP growth if:
A) most government spending is used to reduce the national debt.
B) decreases in private spending more than offset the increase in government spending.
C) taxes do not increase enough to finance the increase in government spending.
D) the credibility of the government is too high.

Question

Quizplus · Accepted Answer

If private spending decreases more than the increase in government spending, the net effect can be a reduction in real GDP growth. This can happen if consumers and businesses become uncertain or nervous about the economy and start holding back on spending, despite an increase in government spending.

An Increase in Government Spending Can Reduce Real GDP Growth