a lower US federal budget deficit may act to raise future US

a lower US federal budget deficit may act to raise future US interest payments to foreigners.....True or false?

Solution

False.

If budget deficit goes down, then deficit financing (in the form of external borrowing) will also be lower. In the saving-investment market, lower borrowing means lower demand for investment, which will decrease the interest rate, and not increase it. At the same time, lower borrowing from domestic or external sources will decrease.