Financing the Deficit

Date: 2015-10-07; view: 607.

Ex. 9.

a) Fill each gap with a suitable word from the box.

b) Sum up the text in 5-7 sentences and present your summary in class.

Since the early 1970s quite a number of countries have been experiencing serious financial problems which have caused growing budget deficits.

Trying to find solutions to swollen budget deficits, governments undertake austerity programmes, work out harsh budgets, implement macroeconomic stabilization, establish priorities for government spendings, analyse effects of different ways of financing their budget deficits.

In principle, budget deficits may be _________ by borrowing from domestic bank and nonbank sources, and from the rest of the world. Excessive ________ on any of these methods of finance may be dangerous because:

• Government borrowing from the central _____ directly affects the monetary base and the money _____. Excessive growth in the money supply leads to high inflation rates and balance-of-payments problems.

• Substantial borrowing from the nonbank sector may _____ аffect the structure of demand and growth potential. In particular, this borrowing may _________ the availability of resources to finance private investment. Such "crowding out" of private investment may_________ through the impact of government borrowing on domestic interest rates.

• Reliance on external finance _________to the accumulation of debt, which needs to be serviced and eventually ___________.

A prudent fiscal policy permits a public deficit, but it must be maintained at a level consistent with other macroeconomic objectives: controlling inflation, promoting private investment, and maintaining external creditworthiness.

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DISCUSSION