The government engages in more deficit spending.Ceteris paribus (all else equal),this would cause

Question

Quizplus · Accepted Answer

Deficit spending by the government increases the demand for loanable funds as it needs to borrow more money to finance its activities. This causes the interest rate to increase, incentivizing individuals and businesses to save more and supply more loanable funds to the market. Therefore, only the demand for loanable funds increases, while the supply remains unchanged or may increase due to increased savings.

The Government Engages in More Deficit Spending