If a government increases its budget deficit,which of the following best describes the consequences?
A)Interest rates and domestic investment rise.
B)Interest rates and domestic investment fall.
C)Interest rates rise, and domestic investment falls.
D)Interest rates fall, and domestic investment rises.

Question

Quizplus · Accepted Answer

When a government increases its budget deficit, it typically does so by borrowing more money. This increased demand for funds tends to drive up interest rates as lenders charge more for the use of their money. Higher interest rates make borrowing more expensive for businesses and individuals, which in turn causes a drop in domestic investment. Therefore, the correct answer is C.

If a Government Increases Its Budget Deficit,which of the Following