If other factors are held constant and the federal government increases its borrowing from the private sector in order to pay for an increased budget deficit,the result will be

Question

Quizplus · Accepted Answer

When the federal government increases its borrowing from the private sector to finance a budget deficit, it creates an increase in demand for loanable funds. The increased demand for loanable funds will lead to an increase in the interest rate as lenders will seek higher returns on their lending to the government. This will also reduce the amount of borrowing by other entities such as businesses and households. Therefore, the increase in government borrowing will result in an overall increase in interest rates.

If Other Factors Are Held Constant and the Federal Government