Question

When the federal government's budget deficit decreases, the aggregate___________ curve for bonds shifts to the____________. supply;...

When the federal government's budget deficit decreases, the aggregate___________ curve for bonds shifts to the____________.

supply; right.

supply; left.

demand; left.

demand; right.

Can't Tell from the information provided

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Homework Answers

Answer #1

As it can be seen in the diagram that initial equilibrium interest rate is determined by the equality of demand and supply curve of the loanable fund.

So when the federal government’s budget deficit decreases, the demand for loanable fund decreases by the government, so the demand curve for fund shifts leftward. All this has been shown in the below diagram.

Hence it can be said that when the federal government's budget deficit decreases, the aggregate demand curve for bonds shifts to the left.

Hence option third is the correct answer.

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