When a Government Has a Budget Deficit,it Must Issue (Sell)government

question 152

Essay

When a government has a budget deficit,it must issue (sell)government bonds to finance the deficit.Does it matter for the rate of inflation if the government sells the government bonds to the public or sells the government bonds to the central bank? Explain why it does or does not matter.

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Definitions:

Explicit Costs

Direct, out-of-pocket expenses paid by firms for inputs to production, such as wages, rent, and materials, as opposed to implicit costs which are not directly paid out in cash.

Implicit Costs

The opportunity costs that are not directly paid for or incurred during the production of a good or service.

Average Total Cost

The complete expenditure of manufacturing (incorporating steady and fluctuating expenses) divided by the aggregate volume of goods produced.

Output

The total quantity of goods or services produced by a company, sector, or economy within a given period.