-If the original condition in the market for loans were shown by demand and supply curves D and S, increased government borrowing matched by Federal Reserve monetizing of this debt would be illustrated by:
A) a shift of the supply curve from S to S'.
B) a shift of the demand curve from D to D'.
C) a movement from point a to point d on demand curve D.
D) a shift of the supply curve from S to S' and a shift of the demand curve from D to D'.

Question

-If the original condition in the market for loans were shown by demand and supply curves D and S, increased government borrowing matched by Federal Reserve monetizing of this debt would be illustrated by:
A) a shift of the supply curve from S to S'. 
B) a shift of the demand curve from D to D'. 
C) a movement from point a to point d on demand curve D. 
D) a shift of the supply curve from S to S' and a shift of the demand curve from D to D'.

Quizplus · Accepted Answer

When the government increases borrowing and the Federal Reserve monetizes this debt, it essentially means the government is issuing more debt and the Federal Reserve is buying this debt, injecting more money into the economy. This increases the supply of loanable funds (shifting the supply curve from S to S') because the Federal Reserve's actions increase the amount of money available for lending. At the same time, increased government borrowing increases the demand for loanable funds (shifting the demand curve from D to D'), as the government is looking to borrow more.

-If the Original Condition in the Market for Loans Were