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As a result of government borrowing to cover deficits, citizens increase the supply of savings to provide themselves with funds to pay anticipated increases in future taxes
As a result of government borrowing to cover deficits, citizens increase the supply of savings to provide themselves with funds to pay anticipated increases in future taxes. Then it follows that increased government borrowing will......... a) reduce private investment. b) increase private investment. c) increase interest rates. d) both (a) and (c) Ο Α ?? ? OD Q19 5 point 19-Which of the following items would fall under government's recurrent expenditure? a)debt servicing b)pensions c)goods and services d) all of the above
Expert Solution
18) option D because this will shift the demand curve to the right in the market for loanable funds. This decreases private investment due to crowding out effect as the rate of interest is increased and the amount of funds available for private investment decline
19) option D this is because recurring expenditure is incurred on regular payments that is different from the capital expenditure or not capital in nature. Pensions servicing such as interest payment as well as pensions all are recurrent expenditure
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