The government is a net borrower, meaning it demands more loanable funds than it supplies. This is because the government spends more than it collects in taxes, resulting in a budget deficit. As a result, the government must borrow from lenders (such as individuals, banks, and foreign governments) by issuing securities like Treasury bonds and bills to finance its spending.

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The Government

Question 12

Multiple Choice

The government:

A) sets most interest rates.
B) is a net lender (or supplier of loanable funds) .
C) is a net borrower (or demander of loanable funds) .
D) determines the "federal risk premium" portion of commercial interest rates.
E) earns more interest on treasury bills and other securities when interest rates rise.

Correct Answer: