In the long run, a higher government deficit does not affect equilibrium real Gross Domestic Product (GDP), so that continuous increases in the government deficit will
A)lead to greater tax revenues.
B)reduce the price level.
C)reduce spending on privately provided goods and services.
D)increase the unemployment rate.

Question

Quizplus · Accepted Answer

In the long run, equilibrium real GDP is determined by factors such as technology, capital stock, and available resources, and is not affected by government deficits. Continuous increases in the government deficit may lead to a reduction in spending on privately provided goods and services, as the government may need to cut back on its spending or borrow more, which can lead to higher interest rates and reduced private investment. This can then lead to a reduction in economic output and an increase in unemployment. However, none of the other options provided are logical outcomes of a higher government deficit in the long run.

In the Long Run, a Higher Government Deficit Does Not