If the government uses a budget surplus to pay off old debt,private sector spending may increase.
If a surplus is used to pay off some of the debt,a crowding-in effect may occur.Households that were holding that debt (government bonds)will end up with more money.If they use that money to buy goods and services,then private sector output will expand.

Question

Quizplus · Accepted Answer

When the government uses a budget surplus to pay off old debt, it can result in a crowding-in effect and increase private sector spending. This is because households who previously held government bonds will have more money available to spend on goods and services.

If the Government Uses a Budget Surplus to Pay Off