Macroeconomics 7

1) If the government becomes more heavily involved in subsidizing some businesses and sectors of the economy while levying higher taxes on others, how will this influence the quantity of rent seeking? How will this affect long-term growth? Explain your response.

2) What’s wrong with this way of thinking? “When the government runs a budget deficit, it simply pays its bills by printing more money. As the newly printed money works its way through the economy, it waters down the value of paper money already in circulation. Thus, it takes more money to buy things. Budget deficits are the major cause of inflation.”

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