Question

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Answer 1

Answer and Explanation:

Here, demand for investments or funds is larger than available saving. Hence, there would be shortage of fund in market. Shortage of fund in market would cause rise in interest rates.