When the government borrows funds in financial markets to pay for budget deficits and interest rates rise as a result, the net effect of the increase in the budget deficit and the government's borrowing to finance it is that it is enhancing the multiplier effect of higher government purchases on aggregate demand. the interest rate and savings decrease. Aggregate demand shifts to the right. crowding out private investments.

When the government borrows funds in financial markets to pay for budget deficits and interest rates rise as a result, the net effect of the increase in the budget deficit and the government's borrowing to finance it is that it is enhancing the multiplier effect of higher government purchases on aggregate demand. the interest rate and savings decrease. Aggregate demand shifts to the right. crowding out private investments.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 3P

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