Choose the statement that is incorret. A. an increase in government expenditure
ID: 2494501 • Letter: C
Question
Choose the statement that is incorret.
A. an increase in government expenditure increases govenment borrowing (or decreases government lending if there is a budget surplus) and lowers the real interest rate.
B. The government expenditure multiplier is the quantitative effect of a change in government expenditure on real GDP.
C. If the only consequence of increased govenment expenditure is crowding-out of investment,the govenment expenditure multiplier is less than1.
D. If the only consequence of increased govenment expenditure is an increase in consumption expenditure, the government expenditure multiplier is greater than 1.
Explanation / Answer
The incorrect atatement is option (A). When government increasers its activity of borrowing then the loan implemented incurs a high rate of interest. This is because the government demands for a long time period of loan which exhibits high rate of interest charged over it. There is lack of funds to keep as a security for future. The inflation rate increases in such a time when there is more spendings.