Suppose a fiscal stimulus package that called for a large increase in government spending actually increases governments’ budget deficit dramatically
a. When the government runs a larger budget deficit, dose that shit the demand curve or the supply curve for loanable funds?
b. Use a supply-and-demand diagram for loanable funds to show in which direction the relevant curve shifts.
c. According to the loanable funds framework, does the interest rate rise or fall as a result of the larger budget deficit?
d. According to the loanable funds framework, does national saving rise or fall as a result of the larger budget deficit?
e. According to the loanable funds framework, does investment rise or fall as a result of the larger budget deficit?