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All else equal, increased government budget deficits _____. A. increase the demand for loanable funds, reducing...

All else equal, increased government budget deficits _____. A. increase the demand for loanable funds, reducing interest rates B. increase the supply of loanable funds, reducing interest rates C. increase the demand for loanable funds, increasing interest rates D. decrease the supply of loanable funds, reducing interest rates E. decrease the demand for loanable funds, reducing interest rates

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Answer is C. increase the demand for loanable funds, increasing interest rates.

All else equal, increased government budget deficits increase the demand for loanable funds, increasing interest rates.

Government budget deficits are related to increase in interest rate. Increase in government budget deficits means that to finance its deficit government will need the funds. They will raise the fund from the loan market. This will increase the demand for funds in the loan market, which will lead the interest rate to rise.

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