Which of the following is NOT a consequence of an increase in the government's budget deficit?

• A. An increase in interest rates
• B. A higher future tax burden
• C. Potential crowding out of private investment
• D. A decrease in government borrowing

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of a government budget deficit, which occurs when government spending exceeds its revenue, requiring the government to borrow funds to cover the gap.
2. Step 2: Recognize that an increase in the government's budget deficit typically leads to increased government borrowing to finance the deficit.
3. Step 3: Analyze the consequences of increased government borrowing, which often include higher interest rates due to greater demand for loanable funds, a higher future tax burden to repay debt, and potential crowding out of private investment as government borrowing competes with private sector borrowing.
4. Step 4: Identify that a decrease in government borrowing contradicts the expected effect of an increased budget deficit, since the government needs to borrow more, not less, to finance the deficit.
5. Step 5: Conclude that among the options given, 'A decrease in government borrowing' is NOT a consequence of an increase in the government's budget deficit.