Government borrowing increases demand for loans in the loanable funds market, just as a rising temperature increases demand for ice in a warmer climate. What would be the analogous outcome in the loanable funds market?

When the government borrows more money, it increases the overall demand for loans in the loanable funds market. This is similar to how a warmer climate leads to more people wanting ice to cool down. Just like the rising temperature pushes up the need for ice, government borrowing raises the competition for available funds, which can lead to higher interest rates. For example, if the government needs to borrow $100 million, banks and lenders may charge more for loans since there’s more demand for the money. As a result, individuals and businesses may find it more expensive to borrow, reducing their ability to invest or spend.