Question

Suppose government expenditures on goods and services and net taxes both decrease, and expenditures fall by more than net taxes. The effects of these changes on the budget deficit cause ________.

Answer 1

Answer:

The equilibrium quantity of loanable funds to rise and the equilibrium interest rate to fall.

Explanation:

In order to understand this question,let us define one or two terms in the question. I will start with net tax. So, what is net tax?.

Net taxes shows how or is a measurement of how taxes flows in and how taxes flows out . Assuming in a specific country, let us say country A collected taxes which amounts to $5 billion in the year 2018 and in that same year the country spent $4 billion on expenditures and things like that, then the net taxes = $5 billion - $4 billion = $1 billion.

So, let us go back to the question. We are told that the expenditures on goods and services and net taxes both decrease and expenditures fall by more than net taxes the effect of this on budget deficit is that the equilibrium interest rate falls.

Answer 2

Answer:

the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise.  

Explanation:

Suppose government expenditures on goods and services and net taxes both decrease, and expenditures fall by more than net taxes. The effects of these changes on the budget deficit cause the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise.  If government expenditures falls more than net tax, the effect on budget deficit is that there will be more funds available than the demand bringing about an increase in money available for loans which will result in a fall in  interest rates.