A ____ federal government deficit increases the quantity of loanable funds demanded at any prevailing interest rate, causing an ____ shift in the demand schedule.
A) higher; inward
B) higher; outward
C) lower; outward
D) none of the above

Question

Quizplus · Accepted Answer

A higher federal government deficit means that the government is borrowing more money, which increases the overall demand for loanable funds. This increased demand causes an outward shift in the demand schedule, as seen in macroeconomics models. Therefore, choice B is the correct answer. Choice A is incorrect because higher demand leads to an outward shift, not inward. Choice C is incorrect because a lower federal government deficit means less borrowing, which would decrease demand and cause an inward shift. Finally, choice D is incorrect because there is a clear relationship between the deficit and the demand for loanable funds.

A ____ Federal Government Deficit Increases the Quantity of Loanable