Government financing of large budgetary deficits:

Question

Quizplus · Accepted Answer

Government financing of large budgetary deficits may temporarily stimulate economic activity because the increased government spending can create jobs and stimulate consumption. Option A is incorrect because financing deficits actually increases interest rates due to increased demand for loans. Option C is incorrect because monetizing the deficit refers specifically to the central bank's purchase of government bonds to finance the deficit. Option D is incorrect because deficit spending increases total consumer spending and demand.

Government Financing of Large Budgetary Deficits