ECONOMICS
ECONOMIC GROWTH
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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financing the deficit by borrowing from the Central Bank
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financing the deficit by selling bonds to individuals
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financing the deficit by selling state assets to private firms
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ncreasing tax rates to eliminate the deficit
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Detailed explanation-1: -Answer and Explanation: The correct choice is B. A Federal budget deficit influences the government to borrow from private sectors, thus incurring a high-interest rate. In turn, deficits impacts on the cost of loan borrowing, which increases the interest paid on loans.
Detailed explanation-2: -Governments borrow money to pay for budget deficits, and whenever a government borrows money, this adds to its national debt.
Detailed explanation-3: -Which of the following policies would not be used by a government which wished to increase the quantity of labour that will be hired? a) A reduction in income tax rates.
Detailed explanation-4: -Expansionary fiscal policy increases the level of aggregate demand, either through increases in government spending or through reductions in taxes. Expansionary fiscal policy is most appropriate when an economy is in recession and producing below its potential GDP.