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Author Question: Explain how deficit spending could be a burden to future generations. What will be an ideal ... (Read 88 times)

panfilo

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on: Jun 30, 2018
Explain how deficit spending could be a burden to future generations.
 
  What will be an ideal response?

Question 2

If a country's human capital improves, ________.
 
  A) the country will have more inequality for a given level of capital stock
  B) the country will have a lower GDP for a given level of capital stock
  C) the country will have more poverty for a given level of capital stock
  D) the country will have a greater GDP for a given level of capital stock
 
  Consider two economies: A and B. Both the countries have access to the same aggregate production function and have the same population and same efficiency units of labor, but have different technologies. Technology in economy B is more advanced than the technology in economy A.


essyface1

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Reply #1 on: Jun 30, 2018
Answer to Question 1

Deficit spending can lead to two negative effects. First, future generations will have higher taxes to pay off the debt. Second, current consumption crowds out investment, and reduces the growth of capital goods leaving future generations with a reduced capital stock.

Answer to Question 2

D


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