Everything else equal,an increase in the government budget deficit would ______.
I.increase the government's demand for funds
II.shift the demand curve for funds to the left
III.increase the interest rate in the economy
A) II only
B) I and II only
C) I and III only
D) I, II and III

Question

Quizplus · Accepted Answer

An increase in government budget deficit means that the government is spending more than its revenue, which leads to an increase in demand for funds. This increase in demand for funds would likely increase the interest rate in the economy (because of increased competition for funds), therefore increasing the cost of borrowing for businesses and individuals. This would lead to a decrease in demand for funds and thus shift the demand curve for funds to the left. Therefore, both I and III are correct. However, II is incorrect as an increase in the government's demand for funds would shift the demand curve for funds to the right, not left.

Everything Else Equal,an Increase in the Government Budget Deficit Would