“… budget surpluses suggest that government borrowing declines, which reduces real rates and causes investment funds to flow out of the country.” (Schweser, book 2, pg 197) Maybe I missed something, but can someone please explain how government borrowing declining reduces real rates? Thanks
Real rates = demand for money. Less demand = lower real rates.
Just supply and demand. If the government isn’t borrowing money, there is less demand and rates will fall. When rates fall, investments flow out of the country looking for better investment opportunities.