Which of the following is a reason why budget deficits lead to increased interest rates? Which combination of fiscal policies would be the most contractionary? Decreasing both spending and taxes Cutting spending and increasing taxes Increasing spending and cutting taxes Increasing both spending and taxes Budget deficits represent the difference between tax revenue and government expenditures. The increased demand for loanable funds in the private market will drive interest rates up. Large budget deficits reduce the strength of the domestic currency. The tax revenue collected to make interest payments on the debt is given to Americans who can then use it to make purchases