A decrease in the government budget deficit decreases the loanable funds and an increase in the government budget surplus increases the loanable funds.

Question

Quizplus · Accepted Answer

A decrease in the government budget deficit means less borrowing by the government, which in turn decreases the demand for loanable funds. Similarly, an increase in the budget surplus means the government is lending more, which increases the supply of loanable funds. Therefore, only option D correctly pairs a decrease in the deficit with a decrease in demand for loanable funds and an increase in the surplus with an increase in the supply of loanable funds.

A Decrease in the Government Budget Deficit Decreases the Loanable