As we know market of loanable funds market shows us the demand and supply of loanable funds in the form of investments and savings respectively. The equilibrium is reached when the investment and supply curve intersects. The price of loanable fund is interest rate. When, there is a budget surplus, there are more funds available to private businesses for investment purposes. As government relies on less taxes and borrowings which increase the savings. Thus, the supply curve of loanable funds shifts to the right. When the supply of loanable funds shifts to the right it leads to lower interest rates and equilibrium quantity of loanable funds increases. Hence we can summaries in short that in budgets surplus there is high savings available and if will increase the Investment and in the loanable fund market there will be increase in supply of the funds that brings down the interest rates in devloped countries we wifness this situation.

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