If the government runs a surplus, the bond ________ curve shifts to the ________:

Question

BlackTom AI · Accepted Answer

A government budget surplus means the government issues fewer new bonds (or uses surplus funds to retire outstanding debt), so the available quantity of government bonds supplied to the market falls.

1) Relevant knowledge points and concepts
- In the bond market, the supply curve represents how many bonds sellers (here, the government) are willing to provide at each price (or interest rate).
- The demand curve represents how many bonds buyers (households, firms, foreigners) want to hold at each price.
- A shift in the supply curve occurs when non-price factors change the quantity supplied at every price (e.g., government borrowing behavior).

2) Step-by-step reasoning
- A budget surplus means tax revenues exceed government spending.
- The government no longer needs to borrow as much; it may issue fewer new bonds or buy back existing bonds.
- That reduction in issuance is a decrease in the supply of bonds at all prices, which is represented graphically as a leftward shift of the supply curve.

3) Intermediate steps (logical progression)
- Surplus → less borrowing.
- Less borrowing → fewer bonds offered.
- Fewer bonds offered at each price → supply curve shifts left.

4) Why the correct answer is correct
- Because the government is the primary bond supplier in the market, a surplus reduces supply. The textbook representation for a reduction in supply is a leftward shift of the supply curve. Therefore the bond supply curve shifts to the left.

5) Why the other options are incorrect
- a. supply; right: Wrong because a surplus does not increase bond issuance; it decreases it.
- b. demand; right: Demand refers to buyers; a surplus affects government borrowing (supply), not buyers, so demand should not shift right.
- d. demand; left: Demand would only shift left if buyers suddenly wanted fewer bonds; a government surplus does not directly reduce demand.

6) Conclusion
- The correct choice is c. supply; left, which matches the provided answer.

If the government runs a surplus, the bond curve shifts to the :Single choice

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If the government runs a surplus, the bond ________ curve shifts to the ________:Single choice