A deficit can be financed by: (a) The sale of government assets (b) The issuance of government bonds (c) All alternatives mentioned (d) Bank loans in the private sector

Economics Jan 28, 2021

A deficit can be financed by:

(a) The sale of government assets

(b) The issuance of government bonds

(d) Bank loans in the private sector

Expert Solution

The correct answer is (b).

It is always vital to finance deficits, which occur through sales of the government, for instance, treasure bonds. Businesses, other governments, and individuals buy treasury bonds and loan money to the government while promising to make payments in the future. The precise, initial influence of government borrowing is that it decreases the pool of funds available to be invested or lent in other trades.

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