In the example with credit market imperfections in general equilibrium, if the borrowing constraint binds
A) a reduction in government debt has no effect on the market interest rate.
B) a reduction in government debt lowers the market interest rate.
C) a reduction in government debt has no effect on the consumption of lenders.
D) a reduction in government debt is a Pareto improvement.
E) a reduction in government debt raises the market interest rate.
Correct Answer:
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