The government finances deficits by borrowing. By reducing the pool of saving, government borrowing can reduce the availability of loanable funds and push interest rates upward--the crowding out effect. Which of the following choices explains how the U.S. government could run large budget deficits without causing interest rates to rise?
A. Foreigners sell outstanding U.S. government bonds in response to deficits.
B. Foreigners buy the debt resulting from the deficits at current interest rates.
C. The central bank reduces the money supply in response to deficits.
Explain.