In 2008, Germany had a budget deficit of 37 billion euros. This deficit resulted in

Question

Quizplus · Accepted Answer

A budget deficit means that the government is borrowing more money, which increases the demand for loanable funds. This causes interest rates to rise, which in turn leads to crowding out of private investment. Therefore, the correct answer is D. A) and B) are incorrect because they do not accurately describe the effects of a budget deficit on the loanable funds market. C) is incorrect because the Ricardo-Barro effect refers to how expectations of future taxes affect current behavior, and is not directly related to budget deficits.

In 2008, Germany Had a Budget Deficit of 37 Billion