With a ever growing government budget deficit, the Federal Reserve will eventually have pressure from the government to take action. If we use the investment-savings −Liquidity and Money − full employment line model to illustrate the effects of a government budget deficit and what the Federal Reserve can do to counter the consequences of a budget deficit. In the long run what happens to interest rate?

Answer rating: 100% (QA)

Answer A budget deficit can lead to higher levels of borrowing higher interest payments and low rein... View the full answer