Other things equal, an increase in the government budget deficit
A) drives the interest rate down.
B) drives the interest rate up.
C) might not have any effect on interest rates.
D) increases business prospects.

Question

Quizplus · Accepted Answer

An increase in the government budget deficit typically leads to higher interest rates because the government needs to borrow more money to finance its deficit, increasing the demand for loanable funds and pushing up the cost of borrowing.

Other Things Equal, an Increase in the Government Budget Deficit