If political influences, independent of any economic forces, lead to a larger government budget deficit, what will be the effect

Question

olga55 [171]

3 years ago

14

If political influences, independent of any economic forces, lead to a larger government budget deficit, what will be the effect

on the loanable funds market

Business

1 answer:

kati45 [8] · Answer 1 · 2022-05-15T12:55:26+03:00

Answer:

The government budget deficit will cause the interest rate to rise, reducing both saving and investment.

Another effect will be the crowding-out of the loanable funds market to private investment. This is because a government in deficit will need to issue more debt in the market, taking up many funds that could have been otherwise invested in private companies.