Due to unexpected decline in federal income tax collections the Treasury will be compelled to borrow an extra $40 billion to cover planned expenditures in the current government budget. Using T accounts, trace through the likely effects of this additional borrowing on the financial markets and on the economy. Assume that 50 percent of the securities to be issued will be absorbed by nonbank institutions. How would your analysis change if the economy were at full employment?

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The Answer of Due to unexpected decline in federal income tax collections the Treasury will be compelled to borrow an extra $40 billion to cover planned expenditures in the current government budget. Using T accounts, trace through the likely effects of this additional borrowing on the financial markets and on the economy. Assume that 50 percent of the securities to be issued will be absorbed by nonbank institutions. How would your analysis change if the economy were at full employment?

Due to Unexpected Decline in Federal Income Tax Collections the Treasury