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 the government budget deficit would increase the government's demand for funds as it requires more money to finance the deficit. This would lead to a rightward shift in the demand curve for funds, which would increase the interest rates in the economy. Therefore, both I and III are true, while II is false as the demand curve shifts right instead of left.

Everything Else Equal, an Increase in the Government Budget Deficit