According to the traditional view of government debt, if taxes are cut without cutting government spending, then the long-run effects will be ______ steady-state capital and ______ consumption.

Question

Quizplus · Accepted Answer

According to the traditional view of government debt, cutting taxes without reducing government spending leads to an increase in government borrowing. This borrowing competes with private sector investment, potentially crowding it out, which can lead to lower steady-state capital. Lower capital, in turn, can lead to lower consumption in the long run as the economy's productive capacity is diminished.

According to the Traditional View of Government Debt, If Taxes