If the long-run budget constraint is upheld, an investment expenditure will increase the present value of consumption only if:
A) the present value of debt is equal to zero.
B) the present value of output is greater than the present value of the investment expenditure.
C) the present value of exports is greater than the present value of imports.
D) output is increasing faster than the growth of population.

Question

Quizplus · Accepted Answer

The long-run budget constraint states that the present value of government spending must be matched by the present value of government revenue. Therefore, if an investment expenditure increases the present value of consumption, it must also increase the present value of output. If the present value of output is not greater than the present value of the investment expenditure, the long-run budget constraint would not be upheld. Therefore, choice B is the correct answer. Choices A, C, and D are not directly related to the long-run budget constraint and do not impact the relationship between investment expenditure and present value of consumption.

If the Long-Run Budget Constraint Is Upheld, an Investment Expenditure