The standard view of the budget deficit is that it:
A)increases the GDP in the long run.
B)increases investment.
C)reduces the capital stock in the long run.
D)all of the above.

Question

Quizplus · Accepted Answer

The budget deficit reduces the capital stock in the long run, as it increases government borrowing and interest rates, discouraging private investment and leading to lower economic growth. It does not necessarily increase the GDP in the long run, as the negative effects on investment can offset any short-term stimulus effects, and it does not directly increase investment.

The Standard View of the Budget Deficit Is That It