If Canada goes from a large budget deficit to a small budget deficit,it will
A)increase private saving and so shift the supply of loanable funds right.
B)increase investment and so shift the demand for loanable funds right.
C)increase public saving and so shift the supply of loanable funds right.
D)reduce national saving and shift the supply left.

Question

Quizplus · Accepted Answer

When Canada goes from a large budget deficit to a small budget deficit, it means that the government is increasing its revenue or decreasing its spending. This results in an increase in public saving, which increases the supply of loanable funds in the economy. As a result, the supply of loanable funds shifts rightward, leading to a decrease in the interest rate and an increase in investment in the economy. This is because with the increased supply of loanable funds, the cost of borrowing decreases which encourages private entities to borrow more for investment projects.

If Canada Goes from a Large Budget Deficit to a Small