An increase in the budget deficit would cause a
A)shortage of loanable funds at the original interest rate,which would lead to falling interest rates.
B)surplus of loanable funds at the original interest rate,which would lead to rising interest rates.
C)shortage of loanable funds at the original interest rate,which would lead to rising interest rates.
D)surplus of loanable funds at the original interest rate,which would lead to falling interest rates.

Question

Quizplus · Accepted Answer

An increase in the budget deficit means the government spends more than it earns, causing a greater demand for loanable funds. As a result, there will be a shortage of loanable funds at the original interest rate, and lenders will be willing to loan money only if interest rates rise. Therefore, there will be a shortage of loanable funds at the original interest rate, which will lead to rising interest rates.

An Increase in the Budget Deficit Would Cause a