An increase in the government's budget deficit ____ the real interest rate and ____ the equilibrium quantity of national saving.
A)increases; increases
B)increases; decreases
C)increases; does not change
D)decreases; increases $70 million

Question

Quizplus · Accepted Answer

An increase in the government's budget deficit will increase the demand for loanable funds, which will push up the real interest rate, reducing the quantity of national saving. Therefore, B is the correct answer as it shows an increase in the real interest rate and a decrease in the equilibrium quantity of national saving.

An Increase in the Government's Budget Deficit ____ the Real