One potential problem with the Chinese government's increases in spending on capital goods is that these increases have been achieved through
A) high levels of borrowing in global financial markets.
B) decreases in private consumption.
C) debt refinancing and tariff revenues.
D) a rapid expansion of the money supply.

Question

Quizplus · Accepted Answer

Increases in spending on capital goods may lead to decreases in private consumption, as resources are diverted towards investment. This can have negative effects on consumer spending and overall economic growth. Option A may also be a potential problem as high levels of borrowing can lead to debt sustainability concerns. Option C refers to specific means of financing the spending increase, but does not necessarily address the potential problems associated with the spending increase itself. Option D may also be a concern, as rapid expansions of the money supply can lead to inflationary pressures.

One Potential Problem with the Chinese Government's Increases in Spending