For a government to add to the supply of loanable funds, it must

Question

Quizplus · Accepted Answer

When a government has a budget surplus, it means that it is spending less than it is taking in as revenue. This allows the government to save the excess funds and add to the supply of loanable funds. When the government borrows, it is essentially taking out loans and using up loanable funds, which does not add to the supply. If the government has a budget deficit, it means that it is spending more than it is taking in, which can lead to a decrease in the supply of loanable funds. Raising the real interest rate would increase the cost of borrowing, which would decrease the demand for loanable funds, but it would not necessarily add to the supply. Increasing investment demand would also increase the demand for loanable funds, but it would not necessarily add to the supply.

For a Government to Add to the Supply of Loanable