Holding other factors constant, if a tax cut moves the government budget from a surplus to a deficit, then the real interest rate will ______ and the equilibrium quantity of national saving and investment will ____.

Question

Quizplus · Accepted Answer

When the government increases its deficit it reduces the supply of loanable funds to private businesses, shifting the supply of savings left. The real interest rates increase and the quantity of national savings and investment decrease.

Holding Other Factors Constant, If a Tax Cut Moves the Government