In the first part of this decade the U.S.government went from a surplus to a deficit.Other things the same,this means the

Question

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When the government goes from a surplus to a deficit, it means that it is borrowing more money, thus increasing its demand for loanable funds. Other things being equal (ceteris paribus), this would shift the demand for loanable funds to the right. However, in the loanable funds market, there is always an equilibrium between the supply and demand for loanable funds. Therefore, if the demand for loanable funds shifts to the right (due to government borrowing), the interest rate would have to increase to restore the equilibrium. This would discourage other borrowers (such as businesses and consumers) from borrowing, and lead to a decrease in the supply of loanable funds. Thus, the correct answer is that the supply of loanable funds shifted to the left (option B).

In the First Part of This Decade the U