When the U.S.government runs a deficit,the savings in the market for loanable funds:
A)shifts left,increasing interest rates and decreasing NCO.
B)shifts left,decreasing interest rates and increasing NCO.
C)shifts right,decreasing interest rates and increasing NCO.
D)shifts right,increasing interest rates,and increasing NCO.

Question

Quizplus · Accepted Answer

When the government runs a deficit, it is borrowing more money from the market for loanable funds. This increases the demand for loanable funds, shifting the savings curve to the left. As a result, the equilibrium interest rate increases and the quantity of net capital outflow (NCO) decreases, as foreigners are less willing to invest in a country with higher interest rates. Therefore, choice A is the correct answer.