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

Question

Quizplus · Accepted Answer

An increase in government spending may lead to a reduction in investment in new capital, as the government is likely to compete with the private sector for funding. As government spending increases, the demand for domestic products and services may lead to an appreciation of the currency, which may make domestic businesses less competitive in international markets. Additionally, the rise in interest rates due to increased government borrowing may reduce consumer expenditures on automobiles and new houses. Therefore, all the options given in the question are correct.

An Increase in Government Spending May Expedite Recovery from a Recession