If the government decides to drastically increase spending (and by extension the budget deficit)during an economic recession,it will increase the _____ loanable funds and _____ equilibrium interest rates.
A) demand for;increase
B) demand for;decrease
C) supply of;decrease
D) supply of;increase

Question

Quizplus · Accepted Answer

When the government increases spending during a recession, it typically finances this by borrowing more, which increases the demand for loanable funds. As demand increases, the price of borrowing (interest rates) also increases.

If the Government Decides to Drastically Increase Spending (And by Extension