UNIT 4 PART 9

The deficit in the money market the government borrow it from the American people.  When there is an increase in government spending, there is an increase in the demand of money because the government is borrowing it.This causes more demand in loanable funds in the loanable funds market.  Due to this it causes aggregate demand to increase. In the loanable funds we can increase it or reduces the national funds since all of them when there is a budget deficit in government. The Fisher effect states that the increase in interest rate has to equal the increase in price level  one to one ratio.