Other things being equal, what is the effect of deficit spending on interest rates?
A)Interest rates decline.
B)Interest rates rise.
C)Interest rates hold constant because the demand for credit decreases.
D)There is no impact unless the Federal Reserve decides to alter the money supply.

Question

Quizplus · Accepted Answer

Deficit spending increases the demand for credit, as the government seeks to borrow more money to fund its spending. This increased demand for credit puts upward pressure on interest rates, as lenders seek to charge higher rates to meet that demand.

Other Things Being Equal, What Is the Effect of Deficit