Government Deficit and the Loanable Funds Market
When the government finances a budget deficit through borrowing, what is the most likely effect in the loanable funds market?
A
Private savings will decrease, causing a decline in the overall supply of loanable funds.
B
Interest rates will fall, encouraging greater private borrowing.
C
Interest rates will rise, thereby reducing private investment.
D
There is no effect on interest rates as public and private funds remain segregated.
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