The purpose of this assignment is to practice economic theoriesrelated to saving, investment, and the financial system
Are Future Budget Deficits a Threat to the​ Economy?
Congress gives the Congressional Budget Office​ (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 the​ CBO,these higher deficits might​ \"pose a threat to the economy bycrowding out business investment and threatening a spike ininterest​ rates.\"
​(Source: Andrew​ Taylor, \"CBO: Deficits to Drift Lower on LowerHealth​ Costs,\" Associated​ Press, April​ 14, 2014.)
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 graph.
b. Is the spike in interest rates connected to crowding
​out? Why might crowding out be considered a threat to the​economy?
