What is likely to happen if the government runs a budget surplus?

Question

Quizplus · Accepted Answer

When the government runs a budget surplus, it means that it is spending less than it is earning in revenue. This surplus can be used to pay down existing debt or saved, effectively increasing the amount of loanable funds available in the market. As the supply of loanable funds increases, the price of borrowing those funds, which is the interest rate, tends to decrease. This is because lenders have more capital to lend, and they may lower interest rates to attract borrowers.

What Is Likely to Happen If the Government Runs a Budget