Answer:
Deficits today are financed by borrowing money, which drives up interest rates and diverts savings out of the private sector. Other things equal, this reduces the amount of private sector investment, meaning that our grandchildren end up inheriting a smaller collection of machines, tools, and equipment. This reduction in capital goods makes their labor less productive and lowers their standard of living (relative to what they otherwise would have achieved). Sample Partial Credit Answer Government deficits reduce private investment.