Recall the Application about the possibility of increases in health-care expenditures crowding out consumption or investment spending to answer the following question(s). In 1950, health-care expenditures in the United States were 5.2 percent of GDP; by 2000, this share had risen to 15.4 percent. Driving these increases were several factors: increasing relative prices of health care compared to other goods, a larger population of the elderly, and increased longevity. Since 1950, the average life span has increased by 1.7 years per decade.
-According to the Application, if increases in health-care expenditures crowd out investment, living standards would
A) rise in the long run.
B) fall in the long run.
C) fall in the short run, but rise again in the long run.
D) rise in the short run, and fall back to their original level in the long run.

Question

Quizplus · Accepted Answer

If increases in health-care expenditures crowd out investment, it would lead to a fall in the long run in living standards. This is because crowding out would reduce investment and productivity growth, leading to lower real wages and living standards in the long run.

Recall the Application About the Possibility of Increases in Health-Care