The federal government finances budget deficits by?

Question

a. selling stock, much like a corporation.
b. printing additional currency.
c. borrowing from the public.
d. raising property taxes.

Answer 1

c. They sell US bonds to fund deficit spending.

Answer 2

Answer a is wrong, bcoz it's the banks who sell the bonds on the stock exchange market, after the govt has issued them. it's a direct transaction done by govt.

c is the correct answer. generally to finance deficits, governments will have to borrow loans from banks through issuing of bonds or Treasury bills. The money comes from savings made by the public.

Printing additional currency is not a popular option, bcoz banks need to maintain a balance between liquidity and profitability. High liquidity ratio, means lower profits. So, b is not correct.

d. is not favourable, bcoz when interet rates flunctuates, it caused great uncertanity for business, which is damaging for long-term investment & growth

Answer 3

Certainly not "A"... buying corporate stock basically means you become part-owner of the company. Governments cal sell bonds, but that is different. US bonds can be purchased abroad, but the owner doesn't get to vote at shareholder meetings.

I think in the past B has been true, but now it is avoided. The money supply is controlled through interest rates.

C sounds good to me, "the public" being whoever buys bonds.

D looks wrong because I've only heard of local property taxes, not federal.

Answer 4

I suppose up all of the above which drives up inflation and makes the debt seem less.

Answer 5

it can do any of the above. but option a is unlikely.
b is too.
so c and d seem the most likely.