If the Canadian government went from a budget deficit to a budget surplus, what would we expect to happen to interest rates and investment?

Question

Quizplus · Accepted Answer

When a government transitions from a budget deficit to a budget surplus, it indicates that the government is bringing in more revenue than it is spending. This often leads to a decrease in government borrowing, which in turn decreases demand for credit. Therefore, interest rates are expected to decrease. A decrease in interest rates makes it cheaper for businesses to borrow money to invest in growth and expansion, which in turn could lead to an increase in investment. Therefore, choice D is the best fit.

If the Canadian Government Went from a Budget Deficit to a Budget