In the case of the United States, the long-run budget constraint is eased somewhat by:
A) increasing debt and increasing wealth at the same time.
B) figuring in the capital gain differential and an interest rate differential on external assets and liabilities.
C) the surprising shrinking trade deficit of the United States.
D) the shrinkage of the U.S. national debt.

Question

Quizplus · Accepted Answer

Figuring in the capital gain differential and an interest rate differential on external assets and liabilities can ease the long-run budget constraint because it accounts for the potential returns on investments made by the government. This can help offset some of the costs of the national debt. The other options listed (A, C, and D) do not necessarily ease the long-run budget constraint in the same way or are not accurate statements (such as the shrinkage of the U.S. national debt, which has not occurred in recent years).

In the Case of the United States, the Long-Run Budget