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7. Dawn states: “As a result of a spending increase by the federal government the budget deficit increase and this will lead

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I am disagreed with the statement. An increase in deficit increases the demand for loanable funds and reduces the supply of loanable funds. An increase in government spending cut means an increase in government borrowing as thus causing an increase in budget deficit. Consequently it will shift the supply curve of bond markets to the right leading to lower bond prices and higher interest rates. An increase in the interest rates causes a decrease in demand in the loanable funds market

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