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Under what circumstances would a rise in the government budget deficit will likely lead to higher...

Under what circumstances would a rise in the government budget deficit will likely lead to higher interest rate?

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The increased budget deficit would lead to higher interest rates when the government borrows from the banking system to bridge the deficit. Increased government borrowing would result in increased demand for loanable funds. However, since the supply of loanable funds is constant or rises by a smaller rate; an increase in the demand for loanable funds would result in a higher interest rate.

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