A federal government deficit may be financed by
1. the general public buying government bonds
2. commercial banks buying treasury bills
3. the Federal Reserve selling securities
A)1 and 2
B)1 and 3
C)2 and 3
D)all of the above

Question

Quizplus · Accepted Answer

1 and 2 are correct because when the federal government runs a deficit, it can finance this deficit by borrowing, which includes selling government bonds to the general public and treasury bills to commercial banks. The Federal Reserve selling securities would not finance a deficit; instead, it's a tool for monetary policy and managing the money supply.

A Federal Government Deficit May Be Financed by