Between 1996 and 1997, the budget deficit in Egypt fell dramatically. Other things being constant, this decline should have made interest rates _______ and investment _______ .

Question

Quizplus · Accepted Answer

When the budget deficit falls, there is less need for government borrowing, which reduces the demand for loans, leading to a decrease in interest rates. When interest rates fall, investment usually increases, as businesses can borrow at lower rates to finance their projects. Therefore, the statement suggests that as the budget deficit in Egypt fell during this period, interest rates would have fallen and investment would have increased. Only choice (D) reflects this relationship correctly.

Between 1996 and 1997, the Budget Deficit in Egypt Fell