When the government runs a budget deficit, national saving is reduced, interest rates rise, and investment falls.

Question

Quizplus · Accepted Answer

When the government runs a budget deficit, it has to borrow money to finance its spending. This reduces the amount of money available for private investment, which in turn can lead to higher interest rates. As interest rates rise, it becomes more expensive for businesses to borrow money, which can lead to a reduction in investment. Therefore, a budget deficit reduces national saving and can lead to lower investment.

When the Government Runs a Budget Deficit, National Saving Is