An increase in government spending may expedite recovery from a recession in the short run, but in the long run, this policy may

Question

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An increase in government spending can lead to a higher demand for goods and services, which can stimulate economic growth in the short run, but it can also have long-term effects. If the government spends more money and the economy recovers, interest rates may increase to prevent inflation, and this can reduce private investment in new capital. Additionally, increased government spending can lead to a larger budget deficit, and this can lead to higher taxes in the future to pay off the debt. Higher taxes can reduce future consumption spending and make domestic businesses less competitive in international markets as the dollar appreciates in value. Hence, all of the above factors can be possible outcomes of an increase in government spending in the long run.

An Increase in Government Spending May Expedite Recovery from a Recession