Fiscal policy in-/decreases interest rates in the long run...

[JJ1337]

How does fiscal policy can in- or decrease long-term interest rates?
Loose fiscal policy –> spending more than tax income –> governmental deficit –> higher gonvermental debts –> higher interest rates in the future?

 

[pokhim]

Tight Money, Loose Fiscal = Flat curve
Loose money, loose fiscal = steep curve
tight money, loose fiscal = normal curve
tight money, tight fiscal = inverted curve.
there is a graph you can draw which helps you remember this off by heart making it very easy to remember. Try the search and you will see.

 

[Galli]

pokhim wrote:
Tight Money, Loose Fiscal = Flat curve
Loose money, loose fiscal = steep curve
tight money, loose fiscal = normal curve
tight money, tight fiscal = inverted curve.
there is a graph you can draw which helps you remember this off by heart making it very easy to remember. Try the search and you will see.

Aren’t those only applicable in the short-term?
When the government runs long-term budget deficits, their implied solveancy comes into question which raises interest rates as investors will begin to question wether or not the government can actually service its debt.