The Government Budget Constraint Can Be Depicted as _____, Where $\Delta$

question 310

Multiple Choice

The government budget constraint can be depicted as _____, where G is government spending, T is tax revenues, M is the money supply, B is bonds held by the public entities, and A is government assets.

• A) \(\Delta\)G - \(\Delta\)T = M + B + A
• B) G - T = \(\Delta\)M + \(\Delta\)B + \(\Delta\)A
• C) G - T = M + \(\Delta\)B + A
• D) G - \(\Delta\)T = \(\Delta\)M + B + A

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Definitions:

Interest Rate

The price, expressed as a percentage of the principal, that a borrower must pay a lender for the use of funds.

Excess Reserves

are bank reserves held in excess of what is required by the central bank, which can be lent out to earn interest.

Money Expansion Process

The increase in the total amount of money in circulation or in the money supply, facilitated by mechanisms such as lower interest rates or quantitative easing.

Demand Deposits

Bank account balances that can be accessed and withdrawn by the depositor at any time without advance notice.