Question

When the interest rate in an economy increases, it is likely the result of either: an increase in the government budget surplus or a decrease in its budget deficit. an increase in the government budget surplus or its budget deficit. a decrease in the government's budget surplus or an increase in its budget deficit. a decrease in the government budget surplus or its budget deficit?

Answer 1

Answer: c). a decrease in the government's budget surplus or an increase in its budget deficit.

Explanation: Budget surplus refers to the excess of government revenue from taxes and other sources over its expenditure. While, budget deficit refers to the excess of government expenditures over its revenue.

BS= T>G

BD= G>T

A decrease in the government's budget surplus or an increase in its budget deficit leads to an increase in the interest rate in the economy. Thus the correct option is c.