Chapter 16.3, Problem 3R

To determine

To evaluate how the national debt is affected by deficit financing?

Explanation of Solution

Financing of deficit requires raising funds to finance the debt that results from excess spending over revenue. The deficit is filled from the public borrowing by either issuing bonds or printing out new money.

A government faces a fiscal deficit when, for a period of time, it expenditure is more money than it received from taxation and other revenues except debt. The difference between revenue and expenditure is then bridged by government borrowing, rising the national debt.

Economics Concept Introduction

Introduction: The national debt, also known as the sovereign debt, is the cumulative total of the federal government 's commitments to both local and international creditors. This is represented by two forms of debt: public debt − owed to international or local Treasury bond holders, bonds, and other instruments.