Use the following to answer questions:
-(Figure: Loanable Funds Market III)Use Figure: Loanable Funds Market III.If the government in a closed economy finances deficits by selling bonds and it decides to decrease defence spending by $200 billion,the equilibrium interest rate will:

Question

Use the following to answer questions: 
-(Figure: Loanable Funds Market III)Use Figure: Loanable Funds Market III.If the government in a closed economy finances deficits by selling bonds and it decides to decrease defence spending by $200 billion,the equilibrium interest rate will:

Quizplus · Accepted Answer

Decreasing government spending shifts the demand curve for loanable funds to the left, decreasing the equilibrium interest rate from 14% to 12%.

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