Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.
-Refer to Figure 13-3. Which of the following movements shows the effects of the government going from a budget deficit to a budget surplus?

Question

Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 13-3. Which of the following movements shows the effects of the government going from a budget deficit to a budget surplus?

Quizplus · Accepted Answer

Moving from Point B to Point A represents the effects of the government going from a budget deficit to a budget surplus. This is because the government is reducing its demand for loanable funds, causing the demand-for-loanable-funds curve to shift leftward from DLF1 to DLF2. This leads to a lower equilibrium interest rate and a smaller quantity of funds being demanded and supplied.