If the government budget deficit increases the immediate effect is for the overa
ID: 2382895 • Letter: I
Question
If the government budget deficit increases the immediate effect is for the overall demand curve for funds to __________ and the supply curve of funds to __________, everything else equal.
A.shift up and to the right; stay the same
B.shift down and to the left; shift up and to the right
C.shift down and to the left; stay the same
D.shift up and to the right; shift down and to the left
If the government budget deficit increases the immediate effect is for the overall demand curve for funds to __________ and the supply curve of funds to __________, everything else equal.
Explanation / Answer
Ans
D.shift up and to the right; shift down and to the left
Budget deficit may arise on account of cyclical nature of the busness and discretionary fiscal policies which may cause , immediately, to increase demand of funds there by shifting demand curve to up and right . But, due to increased cost of fund due to increased demand, crowding out may happen ( Withdrawal of investment and fewer investment softening the demand on funds) reinstating the demand curve.
Cyclical