Over time continued Budget deficits lead to

Question

Quizplus · Accepted Answer

Continued budget deficits imply the government is spending more than it is collecting in revenue, resulting in a higher demand for borrowing. This increased demand for borrowing leads to higher interest rates, which result in lower private investment and a lower capital stock. Additionally, the government may resort to printing more money to finance the deficit, causing inflation which reduces the purchasing power of individuals leading to lower real wages. Hence, continued budget deficits will ultimately result in a lower capital stock and lower real wages.

Over Time Continued Budget Deficits Lead to