The long-run effect of increasing government budget deficits includes
A) a redistribution of output from privately provided goods to government provided goods.
B) no change in equilibrium real GDP.
C) an increase in the price level.
D) all of the above.

Question

Quizplus · Accepted Answer

Increasing government budget deficits can lead to a redistribution of output from privately provided goods to government-provided goods as the government increases its spending. It does not necessarily change the equilibrium real GDP in the long run but can affect it in the short run. Additionally, it can lead to an increase in the price level due to higher demand driven by increased government spending, which can contribute to inflationary pressures. Therefore, all of the given effects are possible long-run outcomes of increasing government budget deficits.

The Long-Run Effect of Increasing Government Budget Deficits Includes