If the government increases expenditure without raising taxes, this will

a. increase the budget deficit and require the government to borrow additional funds.

b. cause the interest rate to increase, thereby, reducing private investment and crowding out the private sector.

c. cause a decrease in the domestic exchange rate which will increase exports and decrease imports.

d. all of the above.

e. a and b only. click to select your answer.

Question

Business

Victoria Patrick

3 May, 11:51

If the government increases expenditure without raising taxes, this will

a. increase the budget deficit and require the government to borrow additional funds.

b. cause the interest rate to increase, thereby, reducing private investment and crowding out the private sector.

c. cause a decrease in the domestic exchange rate which will increase exports and decrease imports.

d. all of the above.

e. a and b only. click to select your answer.

+1

Answers (1)

Know the Answer?

Audrey Jarvis · Answer 1

If the government increases expenditure without raising taxes, this will cause the interest rate to increase, thereby, reducing private investment and crowding out the private sector and cause a decrease in the domestic exchange rate which will increase exports and decrease imports. Expenditures is increasing the amount of money and money available to be spent. In this case, the government is increasing the amount of money that tis available to be spent but they aren't imposing taxes on consumers with the increase.