Which of the following is true about an increase in the U.S. government's budget deficit?
A) It will lead to global crowding out if U.S. interest rates fall below the level of interest rates in other countries.
B) It will cause outflows of foreign funds from the United States as foreign investors move their funds to other countries.
C) It will cause an inward shift in the aggregate demand for funds curve.
D) None of the above

Question

Quizplus · Accepted Answer

An increase in the U.S. government's budget deficit typically leads to higher interest rates, not lower, as the government borrows more, potentially causing crowding out. It does not cause an inward shift in the aggregate demand for funds curve; rather, it increases demand for funds.

Which of the Following Is True About an Increase in the U.S