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Question
Statistics
Posted 10 months ago
Which of the following is the most likely way a government will finance deficit spending?
Choose 1 answer:
(A) Print money
(B) Borrowing
(c) Decrease the discount rate
(D) Buy bonds
(E) Increase public saving
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Answer from Sia
Posted 10 months ago
Solution by Steps
step 1
Identify the most common methods governments use to finance deficit spending: printing money, borrowing, decreasing the discount rate, buying bonds, and increasing public saving
step 2
Evaluate the options in the context of typical government fiscal policy. Printing money can lead to inflation, decreasing the discount rate is a monetary policy tool, buying bonds is a monetary policy action, and increasing public saving is not a direct method of financing deficit spending
step 3
Determine that borrowing is the most direct and common method for a government to finance deficit spending, as it involves obtaining funds directly to cover the shortfall between expenditures and revenues
Answer
B
Key Concept
Government borrowing to finance deficit spending
Explanation
Borrowing is the most direct method for a government to obtain the necessary funds to cover deficit spending, typically through the issuance of government bonds.
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