If the Federal government wants to finance a budget deficit in the least expansionary way, which of the following actions would be most appropriate?

Question

Quizplus · Accepted Answer

Borrowing from the money market is the least expansionary way for the Federal government to finance a budget deficit because it does not increase the money supply in circulation. Issuing new money or increasing government spending both inject more money into the economy, leading to inflationary pressures. Reducing taxation could stimulate economic growth and lead to increased spending and inflation. Borrowing from the money market allows the government to access funds without creating new money or increasing government expenditure.

If the Federal Government Wants to Finance a Budget Deficit