Question

How can heavy federal debt lead to higher interest rates ?

Answer 1

Answer:

A) the government causes increased borrowing competition which leads banks to increase interest rates

Answer 2

Answer:

The government causes increased borrowing competition which leads banks to increase interest rates ( A )

Explanation:

when the federal debt is heavy it leads to the federal government pushing more money into the economy and this act leads to inflation ( increase in the price of goods and services without the corresponding increase in the purchasing power ). since the purchasing power i.e the value of the currency is low the rate of Borrowing will increase in order to meet up with the current prices in the market.

The increase in borrowing competition will lead to the banks increasing the interest rates of the loans in order to make profits as well.