Question

of the following true statements, which statement might be a reason that budget deficits make interest rates go up? the increased demand for loanable funds in the private market will drive interest rates up. they represent the difference between tax revenue and government expenditures. large budget deficits reduce the strength of the domestic currency. tax revenue collected to make interest payments on the debt is given to americans who can then use it to make purchases.

Answer 1

An increase in demand for the loanable funds in the private market is one of the reasons why the budget deficits make the interest rates to go up. Therefore, the option A holds true.

Budget deficit is the condition of the economy, wherein the forecasted incomes of the nation are lesser than the forecasted expenses for a particular period. During this situation, governments borrow funds from private sector, thereby leading to an increase in the demand for funds in the sector, which ultimately leads to an increase in the prevailing interest rates.

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