In the long run, what effect does a government’s deficit spending have on equilibrium real Gross Domestic Product (GDP)?

A) Equilibrium real Gross Domestic Product (GDP) will increase beyond the full-employment level and there will also be an inflationary effect.
B) Higher government deficits will not raise equilibrium Gross Domestic Product (GDP) above the full-employment level.
C) Deficit spending will decrease the nation’s equilibrium real Gross Domestic Product (GDP).
D) The government’s deficit spending will increase equilibrium real Gross Domestic Product (GDP).

ANSWER:

B