You are required to testify before Parliament concerning the effects of an increase in the government surplus. Which of the following is the correct thing for you to say?
A)The debt and interest rates will rise.
B)The debt and interest rates will fall.
C)The debt will rise, and interest rates will fall.
D)The debt will fall, and interest rates will rise.

Question

Quizplus · Accepted Answer

An increase in the government surplus means that the government is spending less than it is earning. This will result in a decrease in the level of government debt, which in turn will lead to a reduction in interest rates as investors will demand lower returns to lend money to the government. Therefore, the correct answer is B, which states that "the debt and interest rates will fall."

You Are Required to Testify Before Parliament Concerning the Effects