Financing Deficits (1 Viewer)

[Jago]

What's the most common method Australia uses to finance its budget deficits?

[ ] Borrowing from the domestic private sector
[ ] Borrowing from overseas
[ ] Borrowing from the RBA (printing money)
[ ] Selling Assets

 

[mattchan]

Borrowing from the domestic private sector

Treasury Bonds

 

[enigma~]

What's the most common method Australia uses to finance its budget deficits?

[ ] Borrowing from the domestic private sector
[ ] Borrowing from overseas
[ ] Borrowing from the RBA (printing money)
[ ] Selling Assets

The reason A is the answer is that borrowing from overseas will cause an increase in foreign debt, printing money wil increase inflation and selling assets is a one off venture so this is not included in the fiscal outcome. Hence, A is the best mechanism to finance a budget.

Edit: oh, and most common method used

 

[Jago]

2/2 is good enough for me. thanks guys.

What about the crowding out effect?

 

[enigma~]

2/2 is good enough for me. thanks guys.

What about the crowding out effect?

That tends to be a problem with domestic borrowing, however it's affected by global economic conditions. For example, during a trough in the business cycle the government is less likely to crowd out the pricate sector as investment and spending would be low at this time. However, if a government continued to borrow even in periods of high economic growth then the 'crowding out' effect may occur.