Government financing of large budgetary deficits

Question

Quizplus · Accepted Answer

When the government finances large budgetary deficits, it may absorb savings and reduce the amount of funds available for private borrowers. This can lead to higher interest rates and crowding out of private investment. Monetizing the deficit refers to the central bank directly financing the government's deficit by printing money. While this can lead to inflation, it does not necessarily reduce total consumer spending and demand.

Government Financing of Large Budgetary Deficits