when the interest rate in an economy decreases, it is most likely as a result of: course hero

When the interest rate in economy decreases it is most likely as a result of?

When the interest rate in an economy decreases, it is most likely as a result of: a/an increase in the government budget surplus or its budget deficit.

Which of the following is an source of demand for financial capital?

There are also two main sources of demand for financial capital: private sector investment (I) and government borrowing. Government borrowing in any given year is equal to the budget deficit, which we can write as the difference between government spending (G) and net taxes (T).

What happens to interest rates when deficit increases?

Effect of Interest Rates The government deficit is associated with an increase in long-term interest rates. Any effort toward lowering the expected level of future national savings places upward pressure on expected short-term interest rates.

When governments are borrowers in financial capital markets?

When governments are borrowers in financial markets, there are three possible sources for the funds from a macroeconomic point of view: (1) households might save more; (2) private firms might borrow less; and (3) the additional funds for government borrowing might come from outside the country, from foreign financial ...

When the interest rate in an economy decreases it is likely the result of either a an or a an?

When the interest rate in an economy decreases, it is most likely as a result of: A. an increase in the government budget surplus or its budget deficit.

When governments are borrowers in financial markets What are the possible sources of funds from a macroeconomic point of view?

When governments are borrowers in financial markets, there are three possible sources for the funds from a macroeconomic point of view: (1) households might save more; (2) private firms might borrow less; and (3) the additional funds for government borrowing might come from outside the country, from foreign financial ...

What will an increase in the interest rate cause?

When interest rates are rising, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop. On the other hand, when interest rates have fallen significantly, consumers and businesses will increase spending, causing stock prices to rise.

How does the interest rate affect the government debt and deficit?

Higher Interest Rates Would Drive Up Deficits and Debt Higher interest costs would increase annual budget deficits and the national debt.

What happens to interest rate when government spending decreases?

There is no change in the interest associated with the change in government spending, thus no investment spending cut off. Therefore, there is no dampening of the effects of increased government spending on income.

What is the likely impact of increased government borrowing on market rates of interest quizlet?

An increase in borrowing by the government will push interest rates upward, which will lead to a reduction in private spending. An increase in borrowing by the government will push interest rates upward, which will lead to a reduction in private spending. a. be highly effective against inflation.

How might bigger government deficits affect the private sector investment in physical capital?

How would you expect larger budget deficits to affect private sector investment in physical capital? Why? Larger budget deficits increase the demand for capital which drives up interest rates and makes private sector investment more expensive. What are some of the ways fiscal policy might encourage economic growth?

What is the impact of government budget deficit on investment explain?

However, it often results in higher interest rates, as well as higher spending on bonds by the private sector – which leads to lower funds for private sector investments and a higher cost of borrowing (due to higher interest rates).