What is the effect of an increase in the budget surplus on the market for loanable funds?

Show Answers

Causes the supply of loanable funds to decrease, leading to a higher real interest rate.Causes the supply of loanable funds to increase, resulting in a lower real interest rate.Leads to an increase in the demand for loanable funds, pushing the real interest rate upward.Leads to a decrease in the demand for loanable funds, causing the real interest rate to fall.Has no impact on either supply or demand in the loanable funds market.

Explanation

An increase in the budget surplus means the government is saving more, which adds to the supply of loanable funds. This increase in supply shifts the supply curve to the right, causing the real interest rate to decrease.