Reference no: EM131482354

Q: "A possible drawback of an increase in government spending is the consequent increase in interest rates that tends to depress private spending. Some economists believe that this crowding out effect will reduce the long-run growth rate of real GDP.

i) Is a reduction in the long-run growth rate of real GDP most likely to occur if the private spending being crowded out is consumption spending, investment spending, or net exports? Briefly explain.

ii) In terms of its effect on the long run growth rate of real GDP, would it matter if the additional government spending involves a) increased spending on highways and infrastructure or ii) increased spending on homeland security and TSA personnel?"

I) I have no idea where to go with this one, help?

II) Yes, because an increase spending on highways and infrastructure help businesses/firms transport goods quicker, it's an investment in technology as well which increases productivity. Investment in homeland security and TSA is not an investment in technology that increases production and thus results in higher consumption (right or wrong)?