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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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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