Government Borrowing and the Loanable Funds Market
How does a reduction in domestic government borrowing, resulting from fiscal consolidation, impact the loanable funds market?
A
It causes a leftward shift in the demand for loanable funds, which lowers the equilibrium interest rate.
B
It causes a rightward shift in the supply of loanable funds, raising the equilibrium interest rate.
C
It causes a leftward shift in the supply of loanable funds, thereby increasing the equilibrium interest rate.
D
It simultaneously shifts both supply and demand to the right, leaving the interest rate unchanged.
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