In the long run, higher government budget deficits will
A) lead to a redistribution of real GDP from privately produced goods and services to government produced goods and services.
B) lead to a redistribution of real GDP from government produced goods and services to privately produced goods and services.
C) cause the price level to go down on government goods but not on private goods.
D) lead to a reduction in the amount of goods and services produced by the government and private sector.

Question

Quizplus · Accepted Answer

Higher government budget deficits often result in increased government spending or decreased taxation, which can lead to a shift in resources from the private sector to the government sector. This shift can manifest as a redistribution of real GDP towards government-produced goods and services, as the government uses its increased financial resources to fund public projects and services.

In the Long Run, Higher Government Budget Deficits Will