The long-run effect of reducing the government budget deficit would be
A) a higher price level and a lower level of output
B) a lower price level and a lower level of output
C) a higher price level and a higher level of output
D) a higher price level with unchanged output
E) a lower price level with unchanged output

Question

Quizplus · Accepted Answer

Reducing the government budget deficit typically leads to lower interest rates, which can increase investment and aggregate supply, resulting in a lower price level without affecting the long-run level of output.

The Long-Run Effect of Reducing the Government Budget Deficit Would