Fiscal stimulus that increases an existing government budget deficit loanable funds

increases the demand for

Explanation:

The market for loanable funds is one in which loanable funds are traded and, therefore, determines the interest rate of the funds based on supply and demand.

Go ahead that the market of loanable funds is a market. It seems obvious, but this fact greatly facilitates their understanding and explanation. Markets, as a general rule, are balanced according to the law of supply and demand.

Loanable funds, as defined by economic theory, are those funds available to lend in an economy. In an economy we can differentiate between those who "have" money "(savers) and those who need money (investors).

Technically, savers (who have money left over) are called surplus agents. Meanwhile, investors (who lack money) are known as agents with deficits.

We can distinguish four cases that modify the market of loanable funds:

Offer increases: If the offer increases, it means that there is more money willing to be borrowed. That is, savers are willing to lend more. When the offer increases, the blue line moves to the right. This causes a decrease in interest rates.

Offer decreases: When the offer decreases, we are saying that there is less money available to lend. Savers are willing to lend less. If the offer decreases, the blue line moves to the left. This causes an increase in interest rates.

Demand increases: Demand represents investors. If demand increases, there are more investors looking for more money. The orange line, which represents the demand, moves to the right. This causes interest rates to rise.

Demand decreases: On the contrary, when demand decreases, we are talking about less people looking for money. Therefore, the orange line shifts to the left and the interest rate decreases.

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