Question

Government budget deficits shift the bond −−−−−−− curve to the −−−−−−−.

(a) supply; left

(b) demand; left

(c) supply; right

(d) demand; right

jusitify answer

Answer 1

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(c) supply; right

Government budget deficit shifts the bond   Supply Curve to the right .

The supply curve for bonds shifts due to changes in government budgets, inflation expectations,

and general business conditions.

Deficit cause governments to issue bonds and hence shift the bond supply curve right;

Surpluses have the opposite effect.

Higher government deficits increase the supply of bonds and shift the supply curve to the right.

Factors that can cause the supply curve for bonds to shift to the right include:

• An expansion in overall economic activity.
• An increase in expected inflation.
• An increase in government deficits.