The Congressional Budget Office reported that federal budget deficits in the United States were likely to increase during the next decade,and due to these higher deficits,"the nation's capital stock ultimately would be smaller,and productivity and income would be lower than would be the case if the debt was smaller." This higher budget deficit would be represented graphically by

Question

Quizplus · Accepted Answer

An increase in federal budget deficits would lead to an increase in government borrowing, resulting in a higher demand for loanable funds. This would cause the interest rate to rise, leading to a decrease in private investment and a shift in the supply curve for loanable funds to the left. As a result, the nation's capital stock would ultimately be smaller, and productivity and income would be lower than if the debt was smaller.

The Congressional Budget Office Reported That Federal Budget Deficits in the United