Question

How do governments budget their deficit financed in a open economy

Answer 1

Governments can counter budget deficits in an open economy by promoting economic growth through fiscal policies, such as reducing government expenditure and increasing taxes. For instance, one strategy is by reducing regulations and lowering corporate taxes to improve business confidence and increase Treasury inflows from taxes. Additional, the governments can print currencies to cover payments on debts issuing securities, such as Treasury bills and bonds.