The long-run opportunity cost of government spending that crowds out private investment _____
A) equals about 10 percent of GDP.
B) lowers interest rates and results in lower-interest income for U.S. resource owners.
C) would be greater if the government's expenditures were invested in building better highways and a more educated workforce.
D) results from the corresponding contractionary gap.
E) would be greater if the government's expenditures were devoted to increasing retirement benefits rather than educating the work force.

Question

Quizplus · Accepted Answer

The long-run opportunity cost of government spending that crowds out private investment is higher when the government's expenditures are focused on consumption (like increasing retirement benefits) rather than on investments that could enhance productivity (like educating the workforce). This is because investments in education can increase the productivity and potential output of the economy, whereas spending on retirement benefits does not contribute to the economy's productive capacity in the same way.

The Long-Run Opportunity Cost of Government Spending That Crowds Out