Predict the consequences of investors doubting the federal government's ability to repay the national debt.(1 point)

Question

Responses

Fewer investors would be purchasing the securities from the Treasury, resulting in an increase in interest rates, and a further increase in the cost of borrowing for the national debt.
Fewer investors would be purchasing the securities from the Treasury, resulting in an increase in interest rates, and a further increase in the cost of borrowing for the national debt.

Investors would be selling their existing securities and buy new securities at lower interest rates, which lead to a decrease in available cash for the federal government.
Investors would be selling their existing securities and buy new securities at lower interest rates, which lead to a decrease in available cash for the federal government.

Investors would purchase new securities and try to sell their existing securities back to the government, resulting in a cash crunch.
Investors would purchase new securities and try to sell their existing securities back to the government, resulting in a cash crunch.

More investors would be purchasing the securities, resulting in a decrease in interest rates, which actually decreases the cost of borrowing for the national debt.

Answer 1

The most accurate prediction of the consequences of investors doubting the federal government's ability to repay the national debt is:

Fewer investors would be purchasing the securities from the Treasury, resulting in an increase in interest rates, and a further increase in the cost of borrowing for the national debt.

When investors doubt the government's ability to repay its debt, they may be less inclined to buy government securities, which decreases demand. This reduced demand typically leads to higher interest rates, as the government would need to offer more attractive rates to entice buyers. Higher interest rates subsequently increase the cost of borrowing for the government when it issues new debt.