As the federal budget deficit increases,

Question

Quizplus · Accepted Answer

As the federal budget deficit increases, the government will have to borrow more money to finance its spending, which will lead to an increase in interest obligations on the borrowings. This is because lenders will demand a higher interest rate to compensate for the increased risk of default. Therefore, option A is the best choice. Option B is incorrect because tax cuts would further increase the deficit, while option C is wrong because federal borrowing is likely to increase, not decrease, as the deficit widens. Option D is incorrect because only option A is correct.

As the Federal Budget Deficit Increases