An increase in the federal government budget deficit will raise the interest rate on bonds.

Question

Quizplus · Accepted Answer

When the federal government increases its budget deficit, it will have to borrow more money by issuing bonds. As the supply of bonds increases, the demand for them may not grow, which would lead to a decrease in the bond prices. To compensate for the lower prices, bond investors will demand a higher interest rate, which will in turn increase the overall interest rate on bonds.

An Increase in the Federal Government Budget Deficit Will Raise