Question

The larger the federal deficit, other things held constant, the higher are what economic variable?

a) Unemployment rates
b) Stock prices
c) Interest rates
d) GDP growth rates

Answer 1

The larger the federal deficit, the higher are interest rates due to increased borrowing and higher risk for lenders.

Step-by-step explanation:

The larger the federal deficit, other things held constant, the higher are interest rates. When the government runs a deficit, it needs to borrow money by issuing bonds. As debt increases, interest payments also rise, leading to an increase in interest rates. This is because lenders require higher interest rates to compensate for the increased risk of lending to a government with a larger deficit.