Question

A) Using the market for loanable funds, if government spending was greater than tax revenue (a budget deficit) then this would: a) Increase the supply of loanable funds and therefore reduce the interest rate. b) Increase the supply of loanable funds and therefore increase the interest rate. c) Decrease the supply of loanable funds and therefore increase the interest rate. d) Increase the demand for loanable funds and therefore reduce the interest rate. e) Increase the demand for loanable funds and therefore increase the interest rate.

b). Which of the following is not an interventionist supply side policy: a) Infrastructure investment b) Investment in education and training c) Tax relief for research and development d) Regional or industrial policies to encourage investment e) Increasing labour market flexibility

Answer 1

a) If government spending was greater than tax revenue (a budget deficit), then this would increase the demand for loanable funds and therefore increase the interest rate. Therefore, the correct answer is e) Increase the demand for loanable funds and therefore increase the interest rate.

b) Increasing labor market flexibility is not an interventionist supply side policy. Therefore, the correct answer is e) Increasing labor market flexibility.