Assume that seigniorage and the government's primary deficit are both zero.If the real interest rate is less than the growth rate of real GDP,fiscal policy ________,and if the real interest rate is greater than the growth rate of real GDP,fiscal policy ________.

Question

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If the real interest rate is less than the growth rate of real GDP, the government can borrow to finance its spending without creating a long-term sustainability problem. However, if the real interest rate is greater than the growth rate of real GDP, the government will eventually have to increase taxes or cut spending to pay back its debt, leading to an unsustainable fiscal policy.

Assume That Seigniorage and the Government's Primary Deficit Are Both