Which of the following correctly describes a way in which deficit spending can impose a burden on future generations? I. Failure to allocate deficit spending to uses that boost future real Gross Domestic Product (GDP) will require taxing future generations at a higher rate to repay the resulting higher public debt.
II) Government deficits that lead to higher employment and real Gross Domestic Product (GDP) in the future will generate increased income taxes for future governments, which will respond by spending the higher tax revenues, creating higher future government budget deficits.
III) Other things being equal, deficit spending fuels increased consumption of goods and services by the current generation that crowds out capital investment, thereby leaving future generations with a smaller stock of capital than otherwise would have existed.
A) I only
B) II only
C) I and III only
D) II and III only

Question

Quizplus · Accepted Answer

Option I correctly describes how deficit spending can impose a burden on future generations by requiring higher taxes to repay the resulting public debt. Option III also correctly describes how deficit spending can lead to decreased capital investment and leave future generations with a smaller stock of capital. Option II is incorrect as it suggests that increased income taxes will lead to future government budget deficits, rather than reducing them.

Which of the Following Correctly Describes a Way in Which