Government cuts public investment to shrink budget deficit

Steps:

• Government reduces public sector investment spending to improve finances.
• Lower government expenditure decreases the budget deficit, assuming taxes remain constant.
• No fall in economic growth suggests private sector or other factors offset the cut.
• Thus, the primary effect is a reduced original budget deficit.

Why A is correct:

• Budget deficit equals government spending minus tax revenue; reducing spending (G) directly lowers the deficit.

Why the others are wrong:

• B: Reducing expenditure in a surplus scenario would increase the surplus, not reduce it.
• C: No evidence links the cut to consumer spending; stable growth implies no such decrease.
• D: Growth stability indicates productivity was not harmed by the investment reduction.

Final answer: A