In the circular-flow diagram, government purchases of goods and services are financed by:

Question

Quizplus · Accepted Answer

Government purchases of goods and services are financed by tax revenues net of transfer payments plus government borrowing from financial markets. This is because government borrowing allows the government to finance its spending even if tax revenues do not cover the full costs. Transfer payments refer to payments made by the government to individuals or businesses without the exchange of goods or services, which should not be included in the financing of government purchases.

In the Circular-Flow Diagram, Government Purchases of Goods and Services