Which of the following is most likely to happen if Canada increases its budget deficit?
A)Private saving will decrease and so shift the supply of loanable funds left.
B)Investment will decrease and so shift the demand for loanable funds left.
C)Public saving will decrease and so shift the supply of loanable funds left.
D)Private saving will increase and so shift the supply of loanable funds to the right.

Question

Quizplus · Accepted Answer

Increasing the budget deficit means that the government is spending more than it is receiving in revenue. This will decrease public saving (which is the government's saving) and shift the supply of loanable funds left. Option A is incorrect because private saving is not directly affected by the budget deficit. Option B is incorrect because investment is usually affected by other factors such as interest rates, expectations, and technological advancements. Option D is incorrect because an increase in private saving is not expected to happen due to increased government spending.

Which of the Following Is Most Likely to Happen If