Other Things Being Equal, What Is the Effect of Deficit

question 29

Multiple Choice

Other things being equal, what is the effect of deficit spending on credit markets?

• A) Both the demand for credit and the supply of credit will increase.
• B) Both the demand for credit and the supply of credit will decrease.
• C) The demand for credit increases while the supply of credit remains constant.
• D) The supply of credit will increase while the demand for credit remains the same.

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Definitions:

Price Floor

A government or regulatory-imposed minimum price set above the equilibrium price, preventing market prices from falling below it.

Producer Surplus

The difference between what producers are willing to accept for a good versus what they actually receive, measured as the area above the supply curve and below the market price.

Government Spend

Public expenditure by government entities on goods, services, and infrastructure for a country's economy and citizens' welfare.

Import Quota

Limit on the quantity of a good that can be imported.