If investors begin to doubt the ability to finance spending with ________, markets will demand ________.

Question

Quizplus · Accepted Answer

If investors begin to doubt the ability to finance spending with both taxes and borrowing, markets will demand higher interest rates to compensate for the increased risk. This is because lenders will demand a higher return on their investment to offset the perceived risk of lending to a government that may not be able to repay its debts. Higher interest rates will also make it more expensive for the government to borrow, which may lead to reduced government spending.

If Investors Begin to Doubt the Ability to Finance Spending