Deficits that arise from discretionary fiscal policy lead to a(n) _____
A) increase in the demand for money, which is offset by the sale of more government securities.
B) decrease in the demand for money, which is offset by the sale of more government securities and an increase in interest rates.
C) increase in the number of government securities sold to the public and an increase in interest rates.
D) decrease in the number of government securities sold to the public and an increase in interest rates.
E) increase in the public's demand for money and a decrease in the number of government securities sold to the public, leading to lower interest rates.

Question

Quizplus · Accepted Answer

Deficits from discretionary fiscal policy lead to an increase in the supply of government securities and therefore an increase in the number of government securities sold to the public. This increase in supply puts downward pressure on bond prices, causing interest rates to rise.

Deficits That Arise from Discretionary Fiscal Policy Lead to A(n)