Cassiopeia is a country facing an acute financial crisis Coupled with 2 negative

Question

Cassiopeia is a country facing an acute financial crisis Coupled with 2 negative growth rate, the rate of iniflation in the economy has increased to almost 12 percent. The govenment of Cassiopeia has recently appointed a panel of experts to suggest suitable fiscal measures Ronald Boyle, a member of the National Trade Union in Cassiopeia, feels that the best policy on the part of the government would be to announce an income tax rebate in the current year However, Danny Cox, an economist, feels that income tax rebates will only reduce government revenue. According to him, a substantial increase in aggregate demand can only result from government investment in real assets In claiming that public spending on real assets will result in a significant increase in GDP, Danny is ignoring the fact that A. O B. O C. D. E. private sector investment in public infrastructure is usually limited borrowing is usually easier for the government than for private firms fiscal expansion is also likely to increase interest rates long-term development is usually driven by the growth of core industries in an economy consumption is determined by real income and not nominal income

Explanation / Answer

Option C is correct

Public spending on real assets would likely result in increased interest rates which might affect the private investment negatively (crowding out effect) and also have a negative impact on GDP growth.

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