Government Borrowing and The Loanable Funds Market
If the U.S. government reduces its budget deficit by cutting borrowing, what effect would this have on the domestic loanable funds market?
A
A rightward shift in the demand for loanable funds, increasing both the equilibrium interest rate and the quantity of funds.
B
A leftward shift in the demand for loanable funds, which lowers the equilibrium interest rate and decreases the quantity of funds lent.
C
No significant change in the market because government borrowing does not affect private investment.
D
A leftward shift in the supply of loanable funds, raising the equilibrium interest rate.
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