Increases in government borrowing can result in:
A) lower interest rates and less borrowing by households and businesses.
B) higher interest rates and less borrowing by households and businesses.
C) lower interest rates and more borrowing by households and businesses.
D) higher interest rates and more borrowing by households and businesses.

Question

Quizplus · Accepted Answer

Increases in government borrowing can lead to higher interest rates because the government competes with households and businesses for the same pool of savings. As demand for loans increases, the cost of borrowing (interest rates) typically goes up, which can crowd out private borrowing by making it more expensive for households and businesses.

Increases in Government Borrowing Can Result In