Holding other factors constant, a higher budget deficit leads to ______ interest rates, and higher inflationary expectations lead to _______ interest rates.

Question

Quizplus · Accepted Answer

A higher budget deficit typically leads to higher interest rates because the government may need to borrow more, increasing demand for credit. Higher inflationary expectations lead to higher interest rates as lenders demand a higher return to compensate for the decreased purchasing power of future interest payments.

Holding Other Factors Constant, a Higher Budget Deficit Leads to ______