Question

QUESTION 22

1. A decrease in the budget deficit

   	a.	may increase, decrease, or not affect investment spending if private saving doesn’t change.
   	b.	makes investment spending fall.
   	c.	makes investment spending rise.
   	d.	does not affect investment spending.

QUESTION 23

1. A larger budget deficit

   	a.	raises the interest rate and investment.
   	b.	raises the interest rate and reduces investment.
   	c.	reduces the interest rate and investment.
   	d.	reduces the interest rate and raises investment.

QUESTION 24

1. A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

   	a.	markets for government debt are fundamentally different from markets for private debt.
   	b.	in our model of the loanable funds market, we define “loanable funds” as the flow of resources available from private saving.
   	c.	in our model of the loanable funds market, we define “loanable funds” as the flow of resources available to fund private investment.
   	d.	of our assumption that the economy is closed.

Answer 1

a) "C"

it will lower the interest rate and a lower interest rate will increase the investment in the market.

b) "B"

Raise the interest rate and reduce the investment in the market. this is also known as crowding out in the market.

c) "B"

Because in our model of loanable fund, the flow of the loanable fund is coming from the private saving.