Answer the next two questions based upon the following diagram.

-If the government borrows to finance the deficit:

Question

Answer the next two questions based upon the following diagram.
 
-If the government borrows to finance the deficit:

Quizplus · Accepted Answer

When the government borrows to finance a deficit, it increases the demand for loanable funds. This increased demand for money can shift the demand curve to the right, from a lower demand position (D₁) to a higher demand position (D₂). This does not directly affect the demand for money in the way options A and C suggest, nor does it necessarily increase investment spending as option B suggests, since the increased demand for funds can lead to higher interest rates, potentially crowding out private investment.

Answer the Next Two Questions Based Upon the Following Diagram