In the long run,larger budget deficits lead to ________.
A)higher saving levels
B)a fall in investment
C)lower interest rates
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

Larger budget deficits lead to a greater demand for borrowing which ultimately leads to an increase in interest rates. This increase in interest rates results in a decrease in investments. Therefore, option B is the correct choice. Option A is incorrect because higher budget deficits mean decreased savings. Option C is also incorrect because larger budget deficits lead to higher interest rates not lower. Option D and E are incorrect because the correct answer is B.

In the Long Run,larger Budget Deficits Lead to ________