If a country went from a government budget deficit to a surplus, which statement would best predict the consequences?
A) National saving would increase, shifting the supply of loanable funds right.
B) National saving would increase, shifting the supply of loanable funds left.
C) National saving would decrease, shifting the demand for loanable funds right.
D) National saving would decrease, shifting the demand for loanable funds left.

Question

Quizplus · Accepted Answer

When a country goes from a government budget deficit to a surplus, it means that the government is taking in more money than it is spending. This leads to an increase in national saving, which means that there is more money available to lend out. This increase in saving shifts the supply of loanable funds to the right, which in turn leads to a decrease in interest rates and an increase in investments.

If a Country Went from a Government Budget Deficit to a Surplus