• Card 51 / 53: Explain the accurate sense in which government deficits today make our grandchildren poorer.

    Answer:
    Deficits today are financed by borrowing money, which drives up interest rates and diverts savings out of the private sector. Other things equal, this reduces the amount of private sector investment, meaning that our grandchildren end up inheriting a smaller collection of machines, tools, and equipment. This reduction in capital goods makes their labor less productive and lowers their standard of living (relative to what they otherwise would have achieved). Sample Partial Credit Answer Government deficits reduce private investment.

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Interventionism: The Mixed Economy

Access: Public Peer Review

Attribution:  Dr. Robert P. Murphy, Lessons for the Young Economist. (Mises Institute), http://mises.org/document/6215/Lessons-for-the-Young-Economist (Accessed 04 April, 2014). License: Creative Commons BY
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