The purpose of this assignment is to practice economic theories related to saving, investment, and the...

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Economics

The purpose of this assignment is to practice economic theoriesrelated to saving, investment, and the financial system
Are Future Budget Deficits a Threat to theâ€‹ Economy?
Congress gives the Congressional Budget Officeâ€‹ (CBO) theresponsibility of estimating the effects of federal spending andtaxing policies on the economy. An Associated Press news story on aCBO report noted that federal budget deficits in the United Stateswere likely to increase in future years. According to theâ€‹ CBO,these higher deficits mightâ€‹ \"pose a threat to the economy bycrowding out business investment and threatening a spike ininterestâ€‹ rates.\"
â€‹(Source: Andrewâ€‹ Taylor, \"CBO: Deficits to Drift Lower on LowerHealthâ€‹ Costs,\" Associatedâ€‹ Press, Aprilâ€‹ 14, 2014.)
a. What did the CBO mean by aâ€‹ \"spike in interestâ€‹ rates\"? Whymight increased federal budget deficits lead to a spike ininterestâ€‹ rates? Illustrate your answer with a graph.
b. Is the spike in interest rates connected to crowding
â€‹out? Why might crowding out be considered a threat to theâ€‹economy?

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a What did the CBO mean by a spike in interest rates Whymight increased federal budget deficits lead to a spike ininterest rates Illustrate your answer with a graphBudget deficit means that government spendings are more thangovernment earningsBalanced budget shows financial prudence by government and alsoshows financial discipline See Answer

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