Homework Answers
The correct answer is OPTION A i.e Supply curve will shift to the right increasing the interest rate.
Explanation :-
Government deficits can be defined as the amount of expenses incurred by government is higher than the income.
The US government in the given situation is trying to reduce its deficit with the help of "interest rates".
So, the government has to increase its income with the help of "interest rates" which can be done through higher "rate of interest".
As the "rate of interest" will increase, automatically the income of the government will increase and it will help in the reduction of deficit of government.
Therefore government will try to increase the rate of interest which will move the Supply curve towards the right.
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