Which of the following is the correct statement of the government budget constraint?
A)Federal budget deficit = change in Treasury securities held by public + increase in monetary base
B)Federal budget deficit = change in Treasury securities held by public - increase in monetary base
C)Federal budget deficit = increase in monetary base - change in Treasury securities held by public
D)Federal budget deficit = change in reserves of banking system + change in currency outstanding

Question

Quizplus · Accepted Answer

The correct statement of the government budget constraint is that the federal budget deficit equals the change in Treasury securities held by the public plus the increase in the monetary base. This reflects how the government finances its deficit by either borrowing from the public (issuing Treasury securities) or by increasing the monetary base (typically involving central bank operations).

Which of the Following Is the Correct Statement of the Government