The Congressional Budget Office reported that federal budget deficits in the United States were likely to increase in future years,and these higher deficits might "pose a threat to the economy by crowding out business investment and threatening a spike in interest rates." This higher budget deficit would be represented graphically by

Question

Quizplus · Accepted Answer

A higher budget deficit would lead to an increase in government borrowing, causing a shift in the supply curve for loanable funds to the left. This shift would result in an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds, potentially crowding out private investment and harming economic growth.

The Congressional Budget Office Reported That Federal Budget Deficits in the United