question archive State true or false and justify your answer: If government spending that gives rise to a budget deficit is for public investment projects, such as highways, then this spending can increase the economy's future production capacity
State true or false and justify your answer: If government spending that gives rise to a budget deficit is for public investment projects, such as highways, then this spending can increase the economy's future production capacity
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State true or false and justify your answer:
If government spending that gives rise to a budget deficit is for public investment projects, such as highways, then this spending can increase the economy's future production capacity.
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Answer: Yes
As stated above, in most cases a budget deficit decreases long-run growth. In some cases though, such as when government uses the money for infrastructure, it can actually increase long-run growth. This is because investments such as infrastructure aren't going to be undertaken by private firms but the return on investment in terms of GDP might be very high. The better the infrastructure of a nation, the lower transportation and transaction costs are which encourage greater economic activity.
