Which statement(s) is/are true? I. At full employment, expansionary fiscal policy results in an increase in aggregate demand, increasing output temporarily above full employment.
II) When the government runs a deficit, it usually sells bonds.
III) When the federal government spends more than tax revenues permit, it can sell bonds only to foreigners.

Question

Quizplus · Accepted Answer

I) At full employment, expansionary fiscal policy will shift the aggregate demand curve to the right, increasing output temporarily above full employment. This is known as demand-pull inflation.
II) When the government runs a deficit and needs to borrow money, it usually sells bonds. This allows the government to finance its spending and pay off debts by promising to repay the bondholders with interest.
III) When the federal government spends more than tax revenues permit, it can sell bonds to anyone, not just foreigners. The buyers of government bonds could be individuals, corporations, or even other parts of the government itself.

Which Statement(s) Is/are True? I