Other things equal,an increase in the government budget deficit
A)drives the interest rate down.
B)drives the interest rate up.
C)might not have any effect on interest rates.
D)increases business prospects.
E)none of the above.

Question

Quizplus · Accepted Answer

An increase in the government budget deficit is often financed through government borrowing, which increases the demand for loanable funds and drives up interest rates. Therefore, choice B is the correct answer. Choices A, C, D, and E are incorrect because they do not reflect the relationship between government budget deficits and interest rates.

Other Things Equal,an Increase in the Government Budget Deficit