Retiring the federal debt will

Question

Quizplus · Accepted Answer

Retiring the federal debt means that the government will no longer issue new bonds to finance the deficit, which will decrease the supply of government bonds (A). As the supply of bonds decreases, the demand for the remaining bonds will increase, which will drive up bond prices (B). As bond prices increase, the yields on those bonds will decrease, which means that the interest rate on government bonds will decrease as well (C). Finally, retiring the federal debt will decrease the demand for money because the government will no longer need to borrow as much, which means that there will be less money circulating in the economy (D). Therefore, all of the above choices are correct.

Retiring the Federal Debt Will