Answered: Why might a government budget deficit…

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Economics

Why might a government budget deficit reduce the economy’s future stock of capital?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 6QR

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Question

Why might a government budget deficit reduce the economy’s future stock of capital?

Expert Solution

Introduction

The government is said to be having a budget deficit when the total expenditure level incurred by the government exceeds its total receipts level, and therefore the government ends up financing this deficit either by borrowing or minting more money.

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