Which of the following is the most likely way a government will finance deficit spending?

Choose 1 answer:
(A) Increase public saving
(B) Borrowing
(C) Print money
(D) Buy bonds
(E) Decrease the discount rate

Question

Which of the following is the most likely way a government will finance deficit spending?

Choose 1 answer:
(A) Increase public saving
(B) Borrowing
(C) Print money
(D) Buy bonds
(E) Decrease the discount rate

Accepted Answer

∻Solution∻ ‖ a ⋮ Government Financing: Governments typically finance deficit spending by borrowing. This involves issuing government bonds to investors, which the government promises to pay back with interest in the future. ‖ ∻Answer∻ ⚹ (B) Borrowing ⚹ ∻Key Concept∻ ⚹ Government borrowing ⚹ ∻Explanation∻ ⚹ Governments often finance deficit spending by borrowing because it allows them to raise large sums of money without immediately increasing taxes or reducing public spending. This method is more sustainable in the short term compared to printing money, which can lead to inflation, or other options like increasing public saving or buying bonds. ⚹◊What impact does deficit spending financed through borrowing have on interest rates in the economy?⍭ Generate me a similar question◊

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