In the Long Run, What Effect Does a Government's Deficit

question 67

Multiple Choice

In the long run, what effect does a government's deficit spending have on equilibrium real Gross Domestic Product (GDP) ?

• A) Government deficit spending will increase equilibrium real Gross Domestic Product (GDP).
• B) Deficit spending will decrease the nation's equilibrium real Gross Domestic Product (GDP).
• C) Higher government deficits will not raise equilibrium Gross Domestic Product (GDP) above the full-employment level.
• D) Higher government deficits will raise equilibrium Gross Domestic Product (GDP) above the full-employment level and also have an inflationary effect.

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Definitions:

Clam Digger

An individual who engages in the activity of harvesting clams from their natural habitats, typically in coastal areas.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Net Cash Flows

The difference between a company's total cash inflows and total cash outflows over a specific period, highlighting its financial health.