A deficit financed by issuing U.S. Treasury bonds to the private sector will have an insignificant effect on the interest rate if:

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Quizplus · Accepted Answer

During a severe recession, the demand for loans is typically low because both consumers and businesses are less likely to borrow money. In such an environment, even if the government borrows more (by issuing U.S. Treasury bonds) to finance a deficit, it's less likely to crowd out private borrowing, and thus, the impact on interest rates can be insignificant. This is because there's already a lack of demand for loans, so the additional supply of government bonds doesn't compete as much with the private sector for funds.

A Deficit Financed by Issuing U