Asked Oct 2, 2019

Collaboration with Congress during the Clinton Administration allowed for an aggressive deficit-cutting plan to pass. As a result, the government was able to reach a balanced budget at the end of the 90's.

Move the supply and/or demand curves to describe the expected effect that this deficit-reduction likely had upon the loanable funds market.

As a result, private investment should have

a) decreased as the cost of borrowing increased.
b) increased as the cost of borrowing increased.
c) increased because the cost of borrowing decreased.
d) decreased as the cost of borrowing decreased.
Market for Loanable Funds
Quantity of loanable funds
Interest rate

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Market for Loanable Funds S D Quantity of loanable funds Interest rate


Expert Answer

Step 1

When the government undergoes an aggressive deficit cutting plan, it means that the government is reducing the spending. The increased spending over the revenue is the reason behind the higher budget deficit and the deficit cutting plan will be thus reducing the spending. As a result of this deficit cutting, the borrowings by the government...


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Supply Demand D' Loanable funds Interest rate


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