If the Treasury uses a budget surplus to retire Treasury securities and reduces the national debt, national income will ____ and interest rates will ____.

Question

Quizplus · Accepted Answer

When the Treasury uses a budget surplus to retire Treasury securities, it reduces the supply of these securities in the market, which can lead to a decrease in interest rates as the demand for the remaining securities increases. Lower interest rates can stimulate investment and consumption, potentially leading to a fall in national income due to the reduced government spending or debt reduction activities. However, the relationship between these actions and national income can be complex and depend on various factors, including the state of the economy and monetary policy responses.

If the Treasury Uses a Budget Surplus to Retire Treasury