The conventional view among economists is that persistent budget deficits lead to a ________ capital stock and a ________ level of potential GDP in the long run.

Question

Quizplus · Accepted Answer

Persistent budget deficits lead to a crowding out of private investment as the government's borrowing competes with private investors for available funds, leading to a smaller capital stock in the long run. This, in turn, leads to a lower level of potential GDP as the economy is operating with a smaller productive capacity.

The Conventional View Among Economists Is That Persistent Budget Deficits