The budget deficits in the early 1980s were largely financed through

Question

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Budget deficits imply that government spending is higher than its revenue. In the early 1980s, the US government implemented expansionary fiscal policies, which resulted in larger budget deficits. The US was also experiencing a relatively high trade deficit, i.e., imports were greater than exports. Thus, the budget deficits were financed through a decrease in net exports, as the government borrowed funds from the rest of the world to finance its spending. Choices A and B are incorrect because an increase in private domestic saving or investment would not necessarily finance the government's budget deficits. Choice C is incorrect because an increase in net exports would have reduced the budget deficits, not financed them.

The Budget Deficits in the Early 1980s Were Largely Financed