When the government runs a budget deficit, what is most likely to happen?
A) Interest rates become lower than they would be otherwise.
B) National saving gets higher than it would be otherwise.
C) Investment gets lower than it would be otherwise.
D) Government debt decreases by the amount of the deficit.

Question

Quizplus · Accepted Answer

When the government runs a budget deficit, it typically borrows money to finance its spending. This increases demand for loanable funds, which drives up interest rates. Higher interest rates mean that investment becomes more expensive, which can lead to a decrease in investment. Therefore, the most likely outcome of a budget deficit is a decrease in investment.

When the Government Runs a Budget Deficit, What Is Most