Sia
Question
Statistics
Posted 5 months ago
The government of Burginville currently has a balanced budget. Rampant consumer spending in Burginville has led to a decrease in national savings, which has affected real interest rates in Burginville.
Which action could the government of Burginville take to offset the effect of a decrease in national savings on real interest rates?
Choose 1 answer:
(A) Increase government spending.
(B) Decrease the money supply.
(C) Run a budget surplus.
(D) Increase the money supply.
(E) Run a budget deficit.
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Answer from Sia
Posted 5 months ago
Solution by Steps
step 1
Identify the economic impact of a decrease in national savings. A decrease in national savings typically leads to higher real interest rates because there is less available capital for borrowing
step 2
Determine the government action that could counteract the increase in real interest rates. To offset the effect of higher real interest rates, the government could increase the money supply. Increasing the money supply would lower interest rates by making more capital available for borrowing
step 3
Evaluate the options provided. The option that aligns with increasing the money supply is (D) Increase the money supply
D
Key Concept
Increasing the money supply
Explanation
Increasing the money supply can offset the effect of a decrease in national savings by lowering real interest rates.
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