Other things equal, an increase in the government budget deficit Group of answer choices drives the interest rate up. drives the interest rate down. might not have any effect on interest rates. increases business prospects.

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Business

Tripp Page

29 October, 09:51

Other things equal, an increase in the government budget deficit Group of answer choices drives the interest rate up. drives the interest rate down. might not have any effect on interest rates. increases business prospects.

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Answers (2)

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Regina Castaneda · Answer 1

Answer: an increase in the government budget deficit drives the interest rate up.

Explanation:

When an increase in government expenditure or a decrease in government revenue increases the budget deficit, the Treasury must issue more bonds. This reduces the price of bonds, raising the interest rate. A higher exchange rate reduces net exports.

A budget deficit is when spending exceeds income. Each year's deficit adds to the debt. As the debt grows, it increases the deficit in two ways. First, the interest on the debt must be paid each year. This increases spending while not providing any benefits.

Aileen · Answer 2

drives the interest rate up.

Explanation:

A budget deficit is the amount by which spending exceeds income.

Other things equal, an increase in the government budget deficit drives the interest rate up.

Generally, when there's a deficit in government budget, they resort to borrowing money from creditors. This creditors are likely to be sceptical about the government's ability to repay the debt and at such would increase the interest rate.