Methods of financing government spending are described by an expression called the government budget constraint,which states the following
A)DEFICIT = (G - T)= ΔMB + ΔBONDS.
B)DEFICIT = (G - T)= ΔMB - ΔBONDS.
C)DEFICIT = (G - T)= ΔBONDS - ΔMB.
D)DEFICIT = (G - T)= ΔMB/ΔBONDS.

Question

Quizplus · Accepted Answer

The expression for the government budget constraint is DEFICIT = (G - T)= ΔMB + ΔBONDS, which means that the government deficit (DEFICIT) is equal to the difference between government spending (G) and tax revenue (T), which is financed through an increase in the monetary base (ΔMB) and/or an increase in government borrowing (ΔBONDS).

Methods of Financing Government Spending Are Described by an Expression