What is the effect of a federal budget surplus? As a result of the federal budget surplus, the A. supply curve for loanable funds will shift to the left. B. supply curve for loanable funds will shift to the right. C. demand curve for loanable funds will shift to the right. D. demand curve for loanable funds will shift to the left.

The correct answer is option B.

Explanation:

A government budget surplus implies that the revenue to the government is greater than government spending. This difference between government revenue and spending can also be referred to as government saving.

This government saving increases the supply of loanable funds. This increase in supply shifts the supply curve for loanable funds to the right. This rightward shift in the supply curve will cause the rate of interest to decrease.

This decline in interest rate reduces the cost of borrowing, so investment will increase.