An increase in the government's budget deficit ________ the real interest rate and ________ the equilibrium quantity of national saving.

Question

Quizplus · Accepted Answer

An increase in the government's budget deficit means the government has to borrow more. This shifts the supply curve for savings to the left and results in increases in the real interest rate but a decrease in the quantity of national saving and investment. This is also called "crowding out" as some private investment is crowded out by the borrowing of the government.

An Increase in the Government's Budget Deficit ________ the Real