Suppose that Peru has a budget surplus, and then goes into deficit. Which statement best predicts the consequences?
A) National saving would increase, and Peru's supply of loanable funds would shift to the left.
B) National saving would increase, and Peru's demand for loanable funds would shift to the right.
C) National saving would decrease, and Peru's supply of loanable funds would shift to the left.
D) National saving would decrease, and Peru's demand for loanable funds would shift to the right.

Question

Quizplus · Accepted Answer

When a country goes from budget surplus to deficit, it means that it is either spending more or earning less. In both cases, national saving decreases. As a result, Peru's supply of loanable funds would shift to the left since there would be less money available for investment.

Suppose That Peru Has a Budget Surplus, and Then Goes