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23 May, 17:39

How will a decrease in the federal government's budget deficit affect the equilibrium interest rate in the bond market?

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  1. 23 May, 18:43
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    Interest rate decrease

    Explanation:

    When the federal budget deficit increases, the Government Issue more treasury bonds to raise funds which increase the equilibrium interest rate in the bond market. Similarly, if the budget deficit decreases, the government stops issuing more bonds which decrease the equilibrium interest rate. It's a simple concept of demand and supply which determines the interest rate.
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