When the government runs a budget deficit, which of the following is most likely to happen?
A)Interest rates become lower than they would be otherwise.
B)National saving gets higher than it would be otherwise.
C)Investment gets lower than it would be otherwise.
D)Government debt decreases by the amount of the deficit.

Question

Quizplus · Accepted Answer

When the government runs a budget deficit, it typically increases its borrowing to finance its spending needs. This increase in government borrowing reduces the amount of funds available for private investment, which tends to crowd out private investment and lead to a decrease in investment. As a result, choice C is the most likely outcome. Choices A and B are incorrect because a budget deficit typically leads to higher interest rates and lower national savings (as the government borrows more). Choice D is incorrect because government debt increases with a budget deficit, not decreases.

When the Government Runs a Budget Deficit, Which of the Following