Question

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

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

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.

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

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.

Explanation: Loss of confidence raises required yields, so the government must offer higher interest to attract buyers, increasing borrowing costs.