Deficits that arise from discretionary fiscal policy lead to:
A)increased private demand for money,which is offset by the sale of more government securities.
B)decreased private demand for money,which is offset by the sale of more government securities and higher interest rates
C)increases in the number of government securities sold to the public and higher interest rates.
D)decreases in the number of government securities sold to the public and higher interest rates.
E)increases in the public's demand for money and increases in the number of government securities sold to the public,leading to lower interest rates.

Question

Quizplus · Accepted Answer

Deficits from discretionary fiscal policy lead to an increase in the supply of government securities being sold to the public, which puts upward pressure on interest rates. This is because the government must compete with private borrowers for funds, and an increase in government borrowing puts upward pressure on interest rates. Therefore, the correct answer is C, which states that deficits from discretionary fiscal policy lead to increases in the number of government securities sold to the public and higher interest rates.

Deficits That Arise from Discretionary Fiscal Policy Lead To