How does the federal government finance a budget deficit?

Question

Quizplus · Accepted Answer

The federal government finances a budget deficit by borrowing funds through the sale of Treasury bonds. This means that the government issues IOUs to investors, who lend money to the government in exchange for interest payments and the promise of repayment at a later date. This increases the national debt, but allows the government to cover its expenses when tax revenues are insufficient. The other options listed (redeeming IOUs, purchasing Treasury bonds, cutting spending) do not directly provide the government with the funds needed to finance a budget deficit.

How Does the Federal Government Finance a Budget Deficit