Which of the following statement regarding the loanable funds market is true ?
Correct answer: D. An increase in the government budget deficit shifts the supply of loanable funds to the left
- A. A decrease in the government budget deficit increase the real interest rate
- B. An increase in the government budget deficit shifts the supply of loanable funds to the right
- C. An increase in private saving shifts the supply of loanable funds to the left
- D. An increase in the government budget deficit shifts the supply of loanable funds to the left
Explanation
A government budget deficit reduces public saving, so national saving and the supply of loanable funds fall, shifting the supply curve left. This tends to raise the real interest rate.
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