If a country increases its government budget deficit,the
A)supply of loanable funds shifts right.
B)supply of loanable funds shifts left.
C)demand for loanable funds shifts right.
D)demand for loanable funds shifts left.

Question

Quizplus · Accepted Answer

When a country increases its government budget deficit, it means that the government is spending more money than it is receiving from taxes. In order to finance this deficit spending, the government must borrow money from the private sector, which increases the demand for loanable funds. As the demand for loanable funds increases, the interest rates go up, which in turn decreases the supply of loanable funds. This is because people and businesses are less likely to save money or invest in long-term projects when the interest rate is high. Therefore, the correct answer is (B) supply of loanable funds shifts left.

If a Country Increases Its Government Budget Deficit,the