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.
E)a decrease in net exports.

Question

Quizplus · Accepted Answer

Increases in spending on capital goods are typically funded through investment or borrowing, which means that funding for such spending typically comes at the expense of other types of expenditure, such as private consumption. Therefore, if the Chinese government has increased spending on capital goods, it may have done so by reducing private consumption, which could create a potential problem for the economy if consumer spending is needed to support economic growth.

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