In comparison to a government that runs a balanced budget, when ...

[mcmcdaniel]

In comparison to a government that runs a balanced budget, when the government runs a budget deficit
 
  A) business investment will fall. B) the equilibrium interest rate will fall.
  C) household savings will fall. D) none of the above

Question 2

Is knowledge capital subject to the law of diminishing returns? Explain.
 
  What will be an ideal response?

[mjbamaung]

Answer to Question 1

A

Answer to Question 2

The law of diminishing returns states that successive increases in capital result in successively smaller and smaller increases in output. Knowledge capital may not be subject to the same law of diminishing returns that physical capital is. In fact, knowledge capital may experience increasing returns because knowledge, once discovered, is available to everyone and is therefore more likely to generate new technologies and economic growth.