Questions: If the government currently has a balanced budget, which one of these actions will lead to a deficit in the government's budget? Select one: a. The Fed increasing the supply of money through an Open Market Operation b. Decreasing spending on education c. Raising spending on Homeland Security d. The Fed lowering the Federal Funds Rate e. Raising income tax Which one of these events is MOST likely to raise interest rates in the economy?

The answer is c. Raising spending on Homeland Security

This action typically involves the Fed buying government securities, which increases the money supply and can lead to lower interest rates. It does not directly affect the government's budget balance.

Decreasing spending on education would likely lead to a budget surplus or help maintain a balanced budget, rather than causing a deficit.

Increasing spending on Homeland Security would increase government expenditures. If revenues remain constant, this would lead to a budget deficit.

Lowering the Federal Funds Rate is a monetary policy action that can influence interest rates but does not directly impact the government's budget balance.

Raising income tax would increase government revenues, which could help maintain a balanced budget or create a surplus, rather than a deficit.

Regarding the second question, the event most likely to raise interest rates in the economy is not directly addressed in the options provided. However, typically, actions such as the Fed decreasing the money supply or increasing the Federal Funds Rate would lead to higher interest rates.