Question

      If the federal government needs to borrow additional funds, this borrowing reflects _______ in the...

      If the federal government needs to borrow additional funds, this borrowing reflects _______ in the supply of loanable funds, and _______ in the demand for loanable funds.

A) an increase; no change

B) a decrease; no change

    C) no change; an increase

    D) no change; a decrease

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Answer #1

The correct answer to this question is Option C i.e. No change ; an Increase

Reason: This option is correct because if the government runs into a deficit it needs to borrow additional funds like everyone else. Therefore due to this borrowing the demand for loanable funds will increase because the government itself gets into the line to borrow the funds among all others. It doesn't have a much impact on the supply but has a larger impact on the demand for loanable funds.

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