When the interest rate in an economy increases, it is likely the result of either: Select one: a. an increase in the government budget surplus or its budget deficit.
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.
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).
If an economy has a budget deficit of 600, private savings of 2,000, and investment of 800. What is the balance of trade in this economy? When government policy moves from a budget surplus to a budget deficit and the trade deficit remains constant: investment will decrease if savings also remains constant.
Which of the following events would cause interest rates to increase? When a Central Bank acts to decrease the money supply and increase the interest rate, it is following: contractionary monetary policy.
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.
A Government Budget Surplus An increase in the supply of loanable funds brings a lower real interest rate, which decreases the quantity of private funds supplied and increases the quantity of investment and the quantity of loanable funds demanded.
One way to understand the connection from budget deficits to trade deficits is that when government creates a budget deficit with some combination of tax cuts or spending increases, it will increase aggregate demand in the economy, and some of that increase in aggregate demand will result in a higher level of imports.
1. When governments are borrowers in financial capital markets, which of the following is least likely to be a possible source of the funds from a macroeconomic point of view? A country's economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms.
When countries run budget deficits, they typically pay for them by borrowing money. When governments borrow, they compete with everybody else in the economy who wants to borrow the limited amount of savings available. As a result of this competition, the real interest rate increases and private investment decreases.
In the market for savings, the demand for savings has increased for two reasons. First, because the government is now competing with private firms for the same pool of national saving to finance its deficit, the government has increased the demand for savings directly, and interest rates rise as a result.
A surplus implies the government has extra funds. These funds can be allocated toward public debt, which reduces interest rates and helps the economy. A budget surplus can be used to reduce taxes, start new programs or fund existing programs such as Social Security or Medicare.