One of the long-run effects of higher government budget deficits is
A) a redistribution of real Gross Domestic Product (GDP) away from government-provided goods and toward more privately provided goods.
B) an increase in the government's share of the nation's economic activity.
C) growth in the economy's private sector at the same time the government sector shrinks.
D) a fall in the equilibrium price level.

Question

Quizplus · Accepted Answer

Higher government budget deficits often lead to an increase in the government's share of the nation's economic activity. This is because to finance deficits, the government may increase borrowing, which can crowd out private investment and lead to a larger government presence in the economy.

One of the Long-Run Effects of Higher Government Budget Deficits