Multiple Choice Question (1 Viewer)

[michaeljennings]

How could the Australian Government finance a budget deficit while maintaining external stability?

a) By increasing domestic income tax rates
b) By selling bonds to international investors
c) By reducing the level of government expenditure
d) By borrowing funds from the domestic private sector

What is the answer

 

[krnofdrg]

How could the Australian Government finance a budget deficit while maintaining external stability?

a) By increasing domestic income tax rates
b) By selling bonds to international investors
c) By reducing the level of government expenditure
d) By borrowing funds from the domestic private sector

What is the answer

domestic private sector.. so D.. this does not effect external stability... as funds are borrow domestically. So therefore gov can use this method.(Remember external stability is financing import expenditure with export income, meaning maintaining the Current account deficit to under 5%, net foreign liabilities have to be low, exchange rate is stable). A is wrong. B is wrong (you want less net foreign liabilites). C nope..

Go visit the fiscal policy chapter 14.

methods of financing deficits

-Borrowing from private sector, selling CGS to domestic financial markets.

-Borrow from RBA which may cause rise in i/r abd lead to "Crowding out effect" on private investment.

-Borow fnds in overseas financial markets by getting RBA to sell new CGS in return for foreign securities (But remember we want to maintain external stability).

 

[michaeljennings]

thanks mate I appreciate the explanation =)

 

[krnofdrg]

thanks mate I appreciate the explanation =)

np, hope this helped!

 

[michaeljennings]

np, hope this helped!

I thought that this was the answer with the same reasoning, but my friend was talking about some other random stuff which I didnt even understand so I thought id ask here for someone to explain for me. I repped you =)

 

[krnofdrg]

I thought that this was the answer with the same reasoning, but my friend was talking about some other random stuff which I didnt even understand so I thought id ask here for someone to explain for me. I repped you =)

hahahah np .. ty

good luck with the atar!!! 99.7!!!!