Suppose that Country B has the same amount of net private saving in Year 1 and i

Question

Suppose that Country B has the same amount of net private saving in Year 1 and in Year 2. However, the government of Country B has a budget surplus of $200 billion in Year 1 and a budget surplus of $100 billion in Year 2. Other things equal, this tends to cause for Country B,

the demand for loanable funds curve to shift to the right

the demand for loanable funds curve to shift to the left

the supply of loanable funds curve to shift to the right

the supply of loanable funds curve to shift to the left

the demand for loanable funds curve to shift to the right

the demand for loanable funds curve to shift to the left

the supply of loanable funds curve to shift to the right

the supply of loanable funds curve to shift to the left

Explanation / Answer

Private saving is constant in both periods. But in the first period govt has surplus of $ 200 B and in second period it is $100 B. In other periods, govt is saving some amount. Hence in both period saving supply curve is shifted to right. Thus correct answer is (C)

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