Higher budget deficits would tend to a. raise interest rates b. reduce investment c. reduce the...
Higher budget deficits would tend to
a. raise interest rates
b. reduce investment
c. reduce the growth rate of the capital stock
d. do all of the above
Homework Answers
ANSWER :
Option d : do all of the above.
Higher budget deficit means issue of government bonds to fill up the gap of deficit. It results in bond price to go down and interest rate goes up. Due to higher interest rates private investment falls and economic growth declines Therefore, growth rate of capital stocks is reduced.
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