When the federal government's budget deficit decreases,the demand curve for bonds shifts to the right.

Question

Quizplus · Accepted Answer

The budget deficit refers to the amount by which the government's spending exceeds its revenue. When the deficit decreases, it means that the government is spending less or generating more revenue. This may lead to a decrease in the supply of bonds as the government may need to issue fewer bonds to finance its deficit. Hence, there would be a leftward shift in the supply curve for bonds, leading to an increase in the equilibrium price and decrease in the equilibrium interest rate. Therefore, the demand curve for bonds would not shift to the right.

When the Federal Government's Budget Deficit Decreases,the Demand Curve for Bonds