a) Suppose government moves from a balanced budget to a budget deficit. Use the loanable funds market
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Question:
a) Suppose government moves from a balanced budget to a budget deficit. Use the loanable funds market to explain what happens to the rate of interest, private investment spending, private saving, private consumption spending, public saving and national saving.
b) Explain using diagrams what happens to the rate of interest, consumption, investment, and aggregate demand if the Central Bank sells government bonds to the public.
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