Assume that with existing tax and spending laws,government spending exceeds government tax revenues.To cover the resulting shortfall,the government must:

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Quizplus · Accepted Answer

When there is a shortfall in government tax revenues, the government can cover it by borrowing money in the financial markets. This means that the government sells bonds to investors, promising to repay the principal plus interest at a later date. This borrowing allows the government to finance its spending in the short run, but it also increases the overall level of debt that the government must eventually repay. Therefore, borrowing should be done prudently and in moderation. The other choices, such as increasing consumer incomes or printing more money, are not feasible options for addressing a shortfall in government tax revenues. Increasing consumer incomes would require an expansionary fiscal policy, such as boosting government spending or reducing taxes, which would worsen the fiscal deficit. Printing more money would lead to inflation, which reduces the purchasing power of money and harms the economy. Lowering interest rates could make borrowing cheaper, but it would also reduce the return on savings and discourage investment, with potential negative effects on the economy.

Assume That with Existing Tax and Spending Laws,government Spending Exceeds