If the government begins to run a larger budget deficits, then assuming there is no Ricardo- Barro effect, the demand for loanable funds and the real interest rate .

Name: If the government begins to run a larger budget deficits, then assuming there is no Ricardo- Barro effect, the demand for loanable funds and the real interest rate .
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Question

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When the government runs larger budget deficits, it increases its borrowing, leading to higher demand for loanable funds, which in turn raises the real interest rate.

If the Government Begins to Run a Larger Budget Deficits