Suppose the Government's Budget Deficit Increases by $500 Billion

Multiple Choice

Suppose the government's budget deficit increases by $500 billion. If there is no Ricardo-Barro effect, what occurs?

A) The supply of loanable funds curve shifts rightward, the real interest rate falls, and the quantity of loanable funds increases.
B) The supply of loanable funds curve shifts leftward, the real interest rate rises, and the quantity of loanable funds increases.
C) The supply of loanable funds curve shifts leftward, the real interest rate rises, and the quantity of loanable funds decreases.
D) The demand for loanable funds curve shifts rightward, the real interest rate rises, and the quantity of loanable funds increases.
E) The demand for loanable funds curve shifts leftward, the real interest rate falls, and the quantity of loanable funds decreases.