What is most likely to happen if Canada increases its budget deficit?
A) Private saving will decrease and so shift the supply of loanable funds left.
B) Investment will decrease and so shift the demand for loanable funds left.
C) Public saving will decrease and so shift the supply of loanable funds left.
D) Private saving will increase and so shift the supply of loanable funds to the right.

Question

Quizplus · Accepted Answer

An increase in budget deficit represents an increase in government spending which leads to a decrease in public saving. This decreased public saving would result in a leftward shift of the supply of loanable funds curve, all other things being equal.

What Is Most Likely to Happen If Canada Increases Its