Over Short-Run Periods During the Past Three to Four Decades

question 46

Multiple Choice

Over short-run periods during the past three to four decades, real interest rates appear to have fallen in the face of higher deficits rather than risen. How might this seeming contradiction best be explained?

• A) Deficits occur when the economy is in a slump and interest rates are low anyway.
• B) Deficits do not appear to cause high real interest rates.
• C) When deficits occurred during an expansion, as during the 1980s, real interest rates were higher than normal.
• D) Both a and b.
• E) Both a and c.