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Economics For Today

10th Edition
Tucker
Publisher: Cengage Learning
ISBN: 9781337613040

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BuyFindarrow_forward

Economics For Today

10th Edition
Tucker
Publisher: Cengage Learning
ISBN: 9781337613040
Chapter 23, Problem 10SQ
Textbook Problem
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The national debt is unlikely to cause national bankruptcy because the federal government can

  1. a. raise taxes.
  2. b. print money.
  3. c. refinance its debt.
  4. d. do all of the above.

To determine

The unlikely chance of national bankruptcy due to national debt.

Explanation of Solution

When the government expenditure is higher than the government revenue, it means that there is a budget deficit in the economy. This budget deficit is met with the borrowings through the sale of the government securities such as the treasury bills, bonds, and notes to the public by the treasury. The sum of the government deficits over the years is known as the national debt.

Option (d):

Treasury depends on the sale of the treasury bills, bonds, and notes for accumulating the fund for meeting the budget deficit. When the national debt, which is the sum of the budget deficits of the federal government increases, the government would increase the taxes in order to increase the revenue and reduce the deficit. The government will also print new currency that helps to deficit financing in the economy and it also helps to avoid the national bankruptcy. Similarly, there is an option of refinancing of the debt by the government when the national debt increases. Thus, these three helps the government to avoid the national bankruptcy due to the national debt. This means that option 'd' is not the correct answer.

Option (a):

When the national debt, which is the sum of the budget deficits of the federal government increases, the government would increase the taxes in order to increase the revenue...

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