When a government has a large budget deficit, it must issue government bonds to finance the...
When a government has a large budget deficit, it must issue government bonds to finance the deficit. Explain if it matters for the rate of inflation if the government sells the bonds to the public or sells the bonds to the central bank?
Homework Answers
Answer - Yes definitely it matters. When the government will sell the bonds to the general public , the public will have to pay money to buy them. After buying the bonds , the money supply in the economy will reduce , thus the inflation rate will come down.
Even if the government sells the bonds to central bank , the central bank will ultimately sell them to public , this will have the same effect of the decrease in the supply of money and hence the decline in the rate of inflation.
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When a government has a large budget deficit, it must issue
government bonds to finance the...
In some countries there is a concern that the government will run large budget deficits and...
In some countries there is a concern that the government will run large budget deficits and force the country’s central bank to “monetize the deficit” by purchasing government bonds and providing money to the government. The resulting increase in the money supply will then lead to high rates of inflation. Briefly explain why this is not a concern in Canada.
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In some countries there is a concern that the government will run large budget deficits and...
In some countries there is a concern that the government will run large budget deficits and force the country’s central bank to “monetize the deficit” by purchasing government bonds and providing money to the government. The resulting increase in the money supply will then lead to high rates of inflation. Briefly explain why this is not a concern in Canada. (All information I have)
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