Question

90- SLF HIYO UWODOU VITUGUIG ITUO HUU UGUI GUID funds in an economy Suppose the government has a budget deficit of $0 2 trillion and the Ricardo-Barro effect holds. Draw the new demand for loanable funds curve. Label it Draw the new supply of loanable funds curve. Label it Draw a point that shows the equilibrium quantity of loanable funds and interest rate. 20- SUF 7.04 60420 DLE 514 O A. the government cannot maintain a budget deficit B. government saving is positive when the government has a budget surplus OC. the budget deficit has no effect on the real interest rate or investment OD. a budget deficit crowds out investment 40 DLF 11 15 Librai Selected: Point tool Delete Clear ?

please, don't pay attention to the lines in the graph. I know it's wrong.

Answer 1

The budget deficit of government increases the demand for loanable fund increases that lead to a higher price of loanable funds (interest rate ) so the equilibrium of the loanable market exists at the higher interest rate and at the higher interest rate private investment crowd out.

that's why maintaining a budget deficit is not feasible for any government.

with government surplus public saving increases

so option A, B and D is correct and option c is incorrect.