If a government has a budget deficit, it must
A) increase taxes.
B) decrease taxes.
C) decrease its expenditures.
D) lower the real interest rate.
E) borrow in the loanable funds market.

Question

Quizplus · Accepted Answer

When a government has a budget deficit, it means it is spending more than it is earning through taxes and other revenues. To finance this deficit, the government must borrow money, which it typically does in the loanable funds market. This is where various entities, including governments, borrow and lend money.

If a Government Has a Budget Deficit, It Must