Suppose that the government collects $500 in taxes and borrows $1000 from the public. If the government prints $200 in new money to finance its budget deficit, how large is the government deficit?

Question

Quizplus · Accepted Answer

The government deficit is the difference between government spending and government revenue. In this case, the government spends $1500 ($500 in taxes + $1000 in borrowing + $200 in new money). The government's revenue is $500 in taxes. Therefore, the government deficit is $1500 - $500 = $1000.

Suppose That the Government Collects $500 in Taxes and Borrows