An increase in the budget deficit causes domestic interest rates
A)and investment to rise.
B)to rise and investment to fall.
C)to fall and investment to rise.
D)and investment to fall.

Question

Quizplus · Accepted Answer

An increase in the budget deficit leads to a rise in demand for credit, causing interest rates to rise. Higher interest rates make it more expensive to borrow, leading to a fall in investment. Therefore, option B is the correct choice.

An Increase in the Budget Deficit Causes Domestic Interest Rates