Assuming that other things remain the same, if the government increases transfer payments to households, what will most likely happen?
A) Investment will rise.
B) The rate of interest will rise.
C) Public saving will rise.
D) The market for loanable funds will be unaffected.

Question

Quizplus · Accepted Answer

When the government increases transfer payments to households, it typically has to finance these payments either by increasing debt or by reallocating funds from other areas. This can lead to a decrease in public saving because the government is spending more. When public saving decreases, the supply of loanable funds can decrease, leading to an increase in the interest rate as the demand for these funds, driven by borrowers, remains constant or increases.

Assuming That Other Things Remain the Same, If the Government