Large budget deficits without causing interest rates to rise

Assignment Help Business Economics

Reference no: EM13774079

The government finances deficits by borrowing. By reducing the pool of saving, government borrowing can reduce the availability of loanable funds and push interest rates upward--the crowding out effect. Which of the following choices explains how the U.S. government could run large budget deficits without causing interest rates to rise?

A. Foreigners sell outstanding U.S. government bonds in response to deficits.

B. Foreigners buy the debt resulting from the deficits at current interest rates.

C. The central bank reduces the money supply in response to deficits.

Explain.

Reference no: EM13774079

Questions Cloud

Large amounts of dollar-denominated assets : As of 2006, the United States is running a large trade deficit--that is, imports exceed exports by a wide margin and the United States is consuming more than it is producing. The U.S.'s ability to consume more than it produces rests on foreigners' wi..

Project planning implementation : Project Planning Implementation. Integrative Project Management Processes. Project Functions and Characteristics

What rate her income must grow annually : Efficiency of labor (h), a measure of human capital, increases with education. With greater efficiency, earning opportunity increases. Suppose a person with high school degree starts a job at MacDonald for $16,640 annual salary. If she has to earn an..

Is the bank liable for the janitors negligence : Is the bank liable for the janitor's negligence (be sure to go through all the elements. Additionally, note that under the doctrine of respondeat superior the bank WILL be liable for any potential negligence of the janitor employee)

Large budget deficits without causing interest rates to rise : The government finances deficits by borrowing. By reducing the pool of saving, government borrowing can reduce the availability of loanable funds and push interest rates upward--the crowding out effect. Which of the following choices explains how the..

Coordination needed to reduce dollar exchange rate requires : Suppose the Bank of Japan (BOJ) and the Federal Reserve Bank decide to coordinate policy in an effort to lower the dollar exchange rate (that is, to reduce the number of Japanese yen needed to purchase one dollar). The policy coordination needed to r..

Hazardous materials management-occupational safety & health : What are some important considerations for selecting a transfer, storage, and disposal facility (TSDF)? Which ones should be first on the list when conducting an audit of a TSDF? Explain your choices.

Diseases in researching field issues : st three diseases you're interested in researching further.

Write an essay on the story battle royal by ralph ellison : Write an essay on the stories Battle Royal by Ralph Ellison, The Lottery by Shirley Jackson, Two Kinds by Amy Tan, "The Road Not Taken" by Robert Frost and "Barbie Doll" by Marge Piercy.

User Account

All Pages