Assume the Federal government runs a budget deficit in the current fiscal year.
i. How can the Federal government fund the deficit?
ii. If the Federal government decides to issue U.S. Treasury securities to fund the deficit, what happens to the level of national debt, all else held constant?
iii. Assuming the Federal government and firms compete for the same savers' dollars in the loanable funds market, what is likely to happen to interest rates?
iv. Given your answer in (iii) above, is crowding out more or less likely to occur if the deficit is funded by Treasury securities? Explain.