Which best describes the economic effect that results from the government running a budget deficit?

Question

Responses

Consumers save more and spend less, enabling long-term financial planning.

Consumers save more and spend less, enabling long-term financial planning.

Consumers save less and spend more, bringing prices down.

Consumers save less and spend more, bringing prices down.

Demand increases, pushing producers to increase supply.

Demand increases, pushing producers to increase supply.

Demand decreases, driving investors into other areas.

Answer 1

The best response that describes the economic effect of a government running a budget deficit is:

Demand increases, pushing producers to increase supply.

When the government runs a budget deficit, it typically spends more money than it receives in revenue. This increased government spending can boost overall demand in the economy, as it injects more funds into circulation, leading to greater consumer expenditure and business investment. As demand increases, producers may respond by increasing their supply to meet this heightened demand.