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:

Federal Budget Deficits

The financial situation occurring when a government spends more money than it receives in income, typically measured over a fiscal year.

Federal Budget Deficit

The shortfall when the government's expenditures exceed its revenues in a fiscal year.

National Debt

The total amount of money that a country's government has borrowed and still owes.

Government Expenditures

Government expenditures are the total amount spent by public entities on goods, services, and obligations, influencing economic activity and fiscal policy.