What important lesson did American economists learn in the 1980s and again in 2001-2003?
A)Large tax cuts can lead to a balance of trade surplus.
B)Large government budget deficits can crowd out consumption.
C)Large government budget deficits can bankrupt the nation.
D)Large government budget deficits can crowd out net exports.

Question

Quizplus · Accepted Answer

The lesson learned in the 1980s and 2001-2003 was that large government budget deficits can crowd out net exports. This means that when the government borrows a lot of money to finance its spending, it can lead to an increase in interest rates which in turn leads to an appreciation of the currency. This makes exports more expensive and less competitive, ultimately leading to a decrease in net exports.

What Important Lesson Did American Economists Learn in the 1980s