An increase in the budget surplus ?
Correct answer: B. Shift the supply of loanable funds to the right and reduces the real interest rate.
- A. Shifts the supply of loanable funds to the left and increase the real interest rate
- B. Shift the supply of loanable funds to the right and reduces the real interest rate.
- C. Shifts the demand for loanable funds to the right and increases the real interest rate.
- D. Shifts the demand for loanable funds to the left and reduces the real interest rate
Explanation
A budget surplus raises public saving and therefore national saving, shifting the supply of loanable funds to the right. With more funds available, the equilibrium real interest rate falls.
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