If Japan goes from a small budget deficit to a large budget deficit, it will reduce
A)private saving and so shift the supply of loanable funds left.
B)investment and so shift the demand for loanable funds left.
C)public saving and so shift the supply of loanable funds left.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

When Japan goes from a small budget deficit to a large budget deficit, it means that its government spending is increasing relative to its tax revenue. This reduces public saving because the government is spending more than it is saving. As a result, the supply of loanable funds shifts leftward because the government is borrowing more, which reduces the amount of funds available for private investment.

If Japan Goes from a Small Budget Deficit to a Large