Question

Assume that taxes are constant. If the government borrows $17 billion in new funds and has a budget deficit of $35 billion, then the central bank has to:

Answer 1

increase the money supply by $18 billion.

Step-by-step explanation:

Data provided in the question

The Borrowed amount by the Government = $17 billion

Budget deficit = $35 million

Based on the above information

The central bank has to raise the money supply by $18 million i.e come form

= Budget deficit - the borrowed amount

= $35 million - $17 million

= $18 million

Hence, the supply is increased by $18 million