Answer to Question #132787 in Macroeconomics for Valerie

Question

Which of the following statements are correct?
1. The difference between government spending and borrowing is called the budget deficit.
2. If government finances part of its spending from borrowing from the central bank, this is called inflationary financing.
3. Expansionary fiscal policy implies that taxes must increase, and government spending must be limited.

Answer 1

Solution:

The correct statement is 2, that is “If government finances part of its spending from borrowing from the central bank, this is called inflationary financing.”