Sia
Question
Statistics
Posted 9 months ago
Which of the following would be a result of a government moving from a balanced budget to a budget deficit?
Choose 1 answer:
(A) The money supply decreases
(B) Bond prices increase
(C) Aggregate demand decreases
(D) Interest rates increase
(E) Government borrowing decreases
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Answer from Sia
Posted 9 months ago
Solution by Steps
step 1
When a government moves from a balanced budget to a budget deficit, it typically needs to borrow money to cover the shortfall
step 2
Increased government borrowing can lead to higher demand for loanable funds
step 3
Higher demand for loanable funds can cause interest rates to rise as lenders require higher returns
D
Key Concept
Interest rates and government borrowing
Explanation
When a government moves from a balanced budget to a budget deficit, it often borrows more money, increasing the demand for loanable funds and leading to higher interest rates.
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