Everything else held constant,when the government has higher budget deficits
A)the demand curve for bonds shifts to the left and the interest rate rises.
B)the demand curve for bonds shifts to the left and the interest rate falls.
C)the supply curve for bonds shifts to the right and the interest rate falls.
D)the supply curve for bonds shifts to the right and the interest rate rises.

Question

Quizplus · Accepted Answer

When the government has higher budget deficits, it issues more bonds to finance the deficit, increasing the supply of bonds. This shifts the supply curve for bonds to the right. As a result, to entice more buyers, the price of bonds falls, which means the interest rate (the cost of borrowing) rises.

Everything Else Held Constant,when the Government Has Higher Budget Deficits