Question

Sketch a diagram of how sustained budget deficits cause low economic growth.

Short answer

Diagrammatically, it are often shown as done below:

Step-by-step solution

Concept Introduction 

The budget balanceis the values of government revenue and spending. When spending is higher than earning, the budger is said to be in deficit. When the earning of the government i higher than expenses incurred, budget is said to be in surplus.

Explanation of Solution  

Interest rate is that the rate which is borne by the borrower for the loan taken. within the financial market, the equilibrium will appear on the intersection of demand and provide of economic capital. so as to sustain the deficit, it's needed to force out the private investment by increasing the interest rates.

On the opposite hand, to sustain the deficit, government borrows more of economic capital. This results in rise within the demand of monetary capital.

The horizontal axis shows the number of monetary capital and vertical axis shows the rate of interest. Initially, the equilibrium appears at E0. The demand increases and therefore the curve shifts rightwards from D0 to D1. This ends up in increase within the rate and therefore the quantity of monetary capital. The new equilibrium are E1.

So, now the funds are available and given to the private market at the increased rate of interest. this can be called the crowding out effect of investment.