Using the model of the national savings market discussed in class, and assuming
ID: 1135312 • Letter: U
Question
Using the model of the national savings market discussed in class, and assuming all other things remain unchanged, what would be the most likely impact on equilibrium in the market for national savings, of the government moving to a smaller budget surplus?
a. The real interest rate and the amount of national savings and investment all fall.
b. The real interest rate and the amount of national savings and investment all rise.
c. The real interest rate rises and the amount of national savings and investment falls.
d. The real interest rate falls and the amount of national savings and investment rises.
And please tell me the reason, thanks a lot!
Explanation / Answer
option a is correct
The real interest rate and the amount of national savings and investment all fall.
(government is a borrower/one of the participants on the demand side of national savings market, when there is a budget surplus- demand for national savings would be lowered (left shift) and interest rates would fall along with the amount of national savings)
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