26.3 Government in Loanable Funds Market
MyEconLab Concept Video
The government enters the loanable funds market when it has a budget surplus or budget deficit. So actions that change the government’s budget balance influence the loanable funds market and the real interest rate. A change in the real interest rate influences both saving and investment. To complete our study of the forces that determine the quantity of investment and the real interest rate, we investigate the role played by the government’s budget balance.
A Government Budget Surplus
A government budget surplus increases the supply of loanable funds. The real interest rate falls, which decreases private saving and decreases the quantity of private funds supplied. The lower real ...
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