An increase in government spending will increase the government budget deficit,which tends to increase interest rates,increase saving,crowd out private investment,stimulate capital formation,and slow the level of economic activity.

Question

Quizplus · Accepted Answer

An increase in government spending can increase the budget deficit and interest rates, potentially crowding out private investment, but it does not stimulate capital formation or slow economic activity; it typically boosts economic activity in the short term.

An Increase in Government Spending Will Increase the Government Budget