Government financing of large budgetary deficits:

Question

Quizplus · Accepted Answer

Government financing of large budgetary deficits may temporarily stimulate economic activity, but it can also crowd out private borrowers by increasing demand for loanable funds and driving up interest rates. This can make it harder and more expensive for private individuals and businesses to access credit, which can ultimately harm the economy in the long run. Absorbing savings and decreasing interest rates (A) is not typically a result of government financing of deficits, as this tends to increase demand for loanable funds and push up interest rates. Monetizing the deficit (C) refers to the process by which the government prints money to finance its spending, which can lead to inflation and undermine the value of the currency. Reducing total consumer spending and demand (D) is also not typically a result of government financing of deficits, as deficit spending injects money into the economy and can increase demand.

Government Financing of Large Budgetary Deficits