According to non-Keynesians, how will an increase in government spending financed by borrowing during a recession affect recovery?
A) Higher future taxes and interest rates will be required to finance the larger debt and this will weaken the recovery.
B) Repayment of the debt can always be shifted to the future, making it possible to keep tax rates low and thereby strengthen the recovery.
C) Higher interest payments will increase future government spending, and thereby promote a stronger the recovery.
D) The increase in government spending will exert a multiplier effect on the economy, leading to a stronger recovery.

Question

Quizplus · Accepted Answer

According to non-Keynesians, an increase in government spending financed by borrowing during a recession will lead to higher future taxes and interest rates to finance the larger debt, weakening the recovery. This is because increased borrowing leads to an increased supply of government debt, which raises interest rates and reduces private investment, leading to a lower potential output and slower growth in the long run. Therefore, non-Keynesians argue that fiscal policies should be focused on reducing government spending and deficits to promote long-term economic growth.

According to Non-Keynesians, How Will an Increase in Government Spending