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26 November, 14:21

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:

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  1. 26 November, 14:29
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    increase the money supply by $18 billion.

    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
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