An increase in the budget deficit will ?
Correct answer: A. raise the real interest rate and decrease the quantity of loanable funds demanded for investment
- A. raise the real interest rate and decrease the quantity of loanable funds demanded for investment
- B. lower the real interest rate and increase the quantity of loaable funds demanded for investment
- C. raise the real interest rate and increase the quantity of loandable funds demanded for investment
- D. lower the real interest rate and decrease the quantity of loanable funds demanded for investment
Explanation
A larger deficit reduces public saving and shifts the supply of loanable funds left, pushing up the real interest rate. The higher rate reduces the quantity of loanable funds demanded for investment.
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