How the government finances its spending does not affect how much real GDP will change following a change in government spending.

Question

Quizplus · Accepted Answer

The method of government financing can affect real GDP, as it can impact interest rates, inflation, and other economic factors that affect production and consumption. For example, if the government finances its spending through borrowing, it may increase demand for credit, which can lead to higher interest rates and reduce private investment. Alternatively, if the government finances its spending through taxes, it may reduce disposable income and consumption, which can also affect real GDP.

How the Government Finances Its Spending Does Not Affect How