Suppose that Chile has a budget surplus, and then goes into deficit. Which of the following best predicts the consequences?
A)National saving would increase, and Chile's supply of loanable funds would shift to the left.
B)National saving would increase, and Chile's demand for loanable funds would shift to the right.
C)National saving would decrease, and Chile's supply of loanable funds would shift to the left.
D)National saving would decrease, and Chile's demand for loanable funds would shift to the right.

Question

Quizplus · Accepted Answer

When Chile goes into deficit, their national saving would decrease as they are spending more than they are taking in. This decrease in national saving would lead to a decrease in the supply of loanable funds in Chile, as they have less funds to save and invest. Therefore, option C is the correct answer as it states that Chile's supply of loanable funds would shift to the left. Option A is incorrect as a decrease in national saving would not increase the supply of loanable funds, but rather decrease it. Option B and D are incorrect as they refer to an increase in national saving, which is not the case when Chile goes into deficit.

Suppose That Chile Has a Budget Surplus, and Then Goes