If a government is running a budget deficit, what is the likely impact on the demand for loanable funds and the equilibrium interest rate?

• A. Demand for loanable funds will increase, leading to higher interest rates.
• B. Demand for loanable funds will decrease, leading to lower interest rates.
• C. Supply of loanable funds will decrease, leading to lower interest rates.
• D. Supply of loanable funds will increase, leading to higher interest rates.

Answer: (A)