Which of the following reasons for maintaining federal budget deficits is inaccurate?
A) Deficits boost domestic saving, which in the long run could promote economic growth.
B) Deficits help reduce the size and duration of recessions through automatic stabilizers.
C) Deficits are used to finance capital projects.
D) Public spending through deficit financing wins support from voters.
E) A federal budget deficit stimulates aggregate demand.

Question

Quizplus · Accepted Answer

Deficits typically reduce domestic saving because the government borrows from the pool of savings that would otherwise be available for private investment. This can crowd out private investment and is not generally seen as a way to boost domestic saving.

Which of the Following Reasons for Maintaining Federal Budget Deficits