When the government goes from running a balanced budget to running a budget surplus:

a. National saving decreases, the interest rate rises, and the economy's long-run growth rate is likely to decrease.

b. National saving increases, the interest rate falls, and the economy's long-run growth rate is likely to decrease.

c. National saving decreases, the interest rate rises, and the economy's long-run growth rate is likely to increase.

d. national saving increases, the interest rate falls, and the economy's long-run growth rate is likely to increase.

Question

Monserrat

Business

5 July, 18:14

When the government goes from running a balanced budget to running a budget surplus:

a. National saving decreases, the interest rate rises, and the economy's long-run growth rate is likely to decrease.

b. National saving increases, the interest rate falls, and the economy's long-run growth rate is likely to decrease.

c. National saving decreases, the interest rate rises, and the economy's long-run growth rate is likely to increase.

d. national saving increases, the interest rate falls, and the economy's long-run growth rate is likely to increase.

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Answers (1)

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Byron Mays · Answer 1

The correct answer is letter "D": national saving increases, the interest rate falls, and the economy's long-run growth rate is likely to increase.

Explanation:

Budget Surplus is an economic term describing a situation where revenue exceeds expenditures. It is usually used referred to as a government entity but can also be applied to individuals and businesses.

For the government, surplus revenue is usually derived from taxes. Most surpluses occur when the economy is healthy and growing because it leads to increase income which generates more tax revenue and savings. Often, when governments have a budget surplus there are calls for a reduction in taxes. Most citizens prefer the government to run at breakeven, thereby minimizing the taxes they are required to pay.