An increase in government spending financed by borrowing changes people's expectations about future taxation such that current consumption expenditures
A)fall. The increase in expenditures makes it likely that future taxes will create smaller distortions.
B)fall. The increase in expenditures makes it likely that future taxes will create larger distortions.
C)rise. The increase in expenditures makes it likely that future taxes will create smaller distortions.
D)rise. The increase in expenditures makes it likely that future taxes will create larger distortions.

Question

Quizplus · Accepted Answer

When government spending is financed by borrowing, people may expect higher future taxes to repay the debt, leading them to reduce current consumption to save for future tax liabilities.

An Increase in Government Spending Financed by Borrowing Changes People's