Some economists argue that because increases in government spending crowd out private spending, increased government spending will reduce the long-run growth rate of real GDP.
a. Is this outcome most likely to occur if the private spending being crowded out is consumption spending, investment spending, or net exports? Briefly explain.
b. In terms of its effect on the long-run growth rate of real GDP, would it matter if the additional government spending involves (i) increased spending on highways and bridges or (ii) increased spending on national parks? Briefly explain.