What would an increase in the budget deficit most likely cause?
A) a shortage of loanable funds at the original interest rate, which would lead to falling interest rates
B) a surplus of loanable funds at the original interest rate, which would lead to rising interest rates
C) a shortage of loanable funds at the original interest rate, which would lead to rising interest rates
D) a surplus of loanable funds at the original interest rate, which would lead to falling interest rates

Question

Quizplus · Accepted Answer

An increase in the budget deficit means the government is borrowing more money, which will increase the demand for loanable funds. This will lead to a shortage of loanable funds at the original interest rate, which will cause interest rates to rise in order to attract more lenders.

What Would an Increase in the Budget Deficit Most Likely