The standard view of the budget deficit is that it:
A)reduces the GDP in the long run.
B)reduces investment.
C)reduces the capital stock in the long run.
D)all of the above.

Question

Quizplus · Accepted Answer

The budget deficit can lead to reduced GDP in the long run as it can cause inflation, increased interest rates, and uncertainty in markets. Additionally, government borrowing to finance the deficit can “crowd out” private investment, reducing overall investment. Finally, if the deficit leads to an increase in government debt, it can eventually lead to a decrease in the capital stock as the government will have less available funds to invest in infrastructure and other long-term projects.

The Standard View of the Budget Deficit Is That It