) The French Government runs a budget deficit and finances it by borrowing $20 billion. Use the loanable fund model to show the decline in public savings and decline in investments (crowding out)

Because of less income and more expenditure government has to borrow money leading to less investment in the economy.

Explanation:

Budget deficit is the situation when the income of the government is less than the expenditures that the government makes in the economy. Since to cover this deficit, the government borrows the money, this means that the government will not be able to invest a lot in the economy.

Because in the fall of the investment by the government in the economy, the public will also not be able to spend much in the economy and there will be less of demand and consumption.