Question

The long-run opportunity cost of government spending that crowds out private investment:

a. equals about 10 percent of GDP.

b. lowers interest rates and results in lower interest income for U.S. resource owners.

c. would be greater if the government's expenditures were invested in building better highways and a more educated workforce.

d. results from the corresponding contractionary gap.

e. would be greater if the government's expenditures were devoted to increasing retirement benefits rather than to educating the work force.

Answer 1

Dear Student,

The answer for the below question is:

The long-run opportunity cost of government spending that crowds out private investment:

e. would be greater if the government's expenditures were devoted to increasing retirement benefits rather than to educating the work force.

EXPLANATION:

It is because of an increase in "government borrowings". If there is increase in government investment or decrease in tax revenue, which causes deficit by increasing borrowing.

And by increasing borrowings by tye government there is absolute increase in interest rates which leads to decrease in private investment.