If other factors are held constant, what happens when the federal government finances a growing budget deficit by increasing the amount it borrows from the private sector?
A) There will be an increase in the interest rate.
B) There will be a decrease in the interest rate.
C) The crowding out effect will be cancelled out.
D) There will be an increase in net exports.
Answer: A) There will be an increase in the interest rate.
Economics
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