Multiple choice question which statement is a major...

Multiple Choice Question.... Which statement is a major consequence of high government budget deficits? A) All else held constant, high budget deficits financed by borrowing will lead to lower interest rates. B) If the government finances the deficit by borrowing money, it can crowd out business investment. C) Budget deficits cause unemployment as firms relocate to countries with balanced budgets. D) Printing money to finance the deficit can lead to a significantly deflationary environment.

Transcript

00:01 So here we're talking about government budget deficits, and i'm going to go through each of these things and try to explain, right? so borrowing will lead to lower interest rates.

00:12 If the government has to borrow money to finance a deficit, you'll get lower interest rates.

00:19 This is obviously incorrect, right? more borrowing equals higher rates, right? there is more demand for borrowing, right? the money that the government is trying to borrow is becoming more scarce, right? they're driving up the price of money, right? if you kept going back to the bank and borrowing more and more and more money, they would eventually ask you for higher interest rates, right? so, yeah, this is just wrong.

00:45 There's nothing true about that.

00:48 B, borrowing can lead to crowding out.

00:58 This is a classic example of what can happen, right? for example, when the government borrows the money, the idea of, that's not the greatest spacing there.

01:15 The idea of crowding out is if the government borrows money, there is less money available for private business.

01:23 Imagine that the government just went to the bank and borrowed all the money to finance the deficit.

01:30 Now the bank might like to make you alone, but they've already lent all their money to.

01:35 To the government so the bank can't make you alone because the government has already scooped up the money inside the banking system.

01:41 So yeah, absolutely.

01:43 See deficits go to unemployment as firms leave...

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