An increase in the government's budget deficit shifts the supply of loanable funds to the right.

Question

Quizplus · Accepted Answer

An increase in the government's budget deficit leads to an increase in the demand for loanable funds, not the supply. This is because the government needs to borrow more money to finance its spending. As a result, the interest rate would rise due to increased competition for funds, not shift the supply curve.

An Increase in the Government's Budget Deficit Shifts the Supply