Larger budget deficits and tighter money tend to produce higher interest rates, a smaller share of investment in GDP, and slower growth.

Question

Quizplus · Accepted Answer

This is because larger budget deficits (when the government spends more money than it takes in) create upward pressure on interest rates and tighter money policies (when the central bank decreases the money supply) also tend to increase interest rates. Higher interest rates can discourage investment because borrowing becomes more expensive, leading to a smaller share of investment in GDP and potentially slower economic growth.

Larger Budget Deficits and Tighter Money Tend to Produce Higher