If the federal government borrows from the private sector to pay for increased budget deficits and interest rates increase, this will cause

Question

Quizplus · Accepted Answer

When interest rates increase, borrowing becomes more expensive, which leads to a decrease in planned investment (as businesses may be less likely to borrow to invest in expanding operations) and a decrease in planned consumption (as individuals may be less likely to borrow to finance spending).

If the Federal Government Borrows from the Private Sector to Pay