Because ________ in the government budget deficit increase the real interest rate,budget deficits can ________ firm investment.

Question

Quizplus · Accepted Answer

When the government budget deficit increases, it leads to an increase in the demand for loanable funds, causing an increase in the real interest rate. This increase in the real interest rate leads to a decrease in firm investment, as it becomes more expensive for firms to borrow money for investment purposes. Therefore, the correct choice is D, where increases in government budget deficits result in a decrease in firm investment.

Because ________ in the Government Budget Deficit Increase the Real