When government spending is $670 million, government borrowing is $320 million, and the central bank has to increase the money supply by $65 million, the fiscal deficit must equal

Question

Quizplus · Accepted Answer

The fiscal deficit is calculated as government spending minus government revenue. Since government borrowing is $320 million, this implies that the government revenue is $670 million - $320 million = $350 million. Therefore, the fiscal deficit is $670 million - $350 million = $320 million. However, the central bank's increase in the money supply does not directly affect the fiscal deficit calculation. Thus, the correct answer is $385 million, which is the difference between government spending and the sum of government borrowing and the increase in money supply.

When Government Spending Is $670 Million, Government Borrowing Is $320