If the Government Deficit Is Financed by an Increase in Bond

question 41

Multiple Choice

If the government deficit is financed by an increase in bond holdings by the public ________.

• A) there is no effect of the monetary base
• B) there is no effect on the money supply
• C) the money supply increases
• D) A and B only

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Definitions:

Excise-Tax Revenues

Government income derived from taxes imposed on specific goods, services, or activities.

Tax Rate

The percentage of income or value of goods that is collected by the government as tax.

Elastic Demand

Product or resource demand whose price elasticity of demand is greater than 1, so that any given percentage change in price leads to a larger percentage change in quantity demanded. As a result, quantity demanded is relatively sensitive to (elastic with respect to) price.

Price Elasticity

A measure of how sensitively the quantity demanded of a good or service responds to a change in its price.