Question

A decrease in the budget deficit a. does not affect investment spending. b. may increase, decrease, or not affect investment spending if private saving doesn’t change. c. makes investment spending fall. d. makes investment spending rise.

Answer 1

A decrease in the budget deficit makes investment spending rise.

Option D.

Step-by-step explanation:

Deficit arises when government spending is higher than its revenue. Revenue is typically taxes and other non-taxable resources. If the difference between government revenue and spending gives a minor deficit or a surplus, it is good for the country’s economy and the investment from private companies will increase due to low-interest rates.

This also decreases the exchange rates and increases manufacturing increasing more goods that the country export. All these factors positively affect the gross domestic products (GDP) and the country’s economy.