Suppose the government deficit increases,but the interest rate remains the same.Which of the following things might have happened simultaneously to keep interest rates the same?
A)The government reduces the amount that people may put into savings accounts on which the interest is tax exempt.
B)Because they are optimistic about the future of the economy,firms desire to borrow more to purchase physical capital.
C)Consumers decide to decrease consumption and work more.
D)All of the above could explain why the interest rate would be unchanged.

Question

Quizplus · Accepted Answer

If consumers decide to decrease consumption and work more, they may save more, increasing the supply of loanable funds, which can offset the increased demand for funds due to the government deficit, keeping interest rates unchanged.

Suppose the Government Deficit Increases,but the Interest Rate Remains the Same.Which