Which of the following would an increase in the budget deficit most likely cause?
A)a shortage of loanable funds at the original interest rate, which would lead to falling interest rates
B)a surplus of loanable funds at the original interest rate, which would lead to rising interest rates
C)a shortage of loanable funds at the original interest rate, which would lead to rising interest rates
D)a surplus of loanable funds at the original interest rate, which would lead to falling interest rates

Question

Quizplus · Accepted Answer

An increase in the budget deficit would increase the government's demand for loanable funds, thereby causing a shortage of funds at the original interest rate. This shortage would cause lenders to raise interest rates, as borrowers compete for scarce funds. Therefore, C is the correct answer.

Which of the Following Would an Increase in the Budget