When the government borrows to finance excess spending, it causes the _______ loanable funds to _______.
A) demand for; increase
B) demand for; decrease
C) supply of; increase
D) supply of; decrease

Question

Quizplus · Accepted Answer

When the government borrows to finance excess spending, it increases the demand for loanable funds because it needs to borrow more money from the public. This does not directly affect the supply of loanable funds, but rather increases competition for existing funds.

When the Government Borrows to Finance Excess Spending, It Causes