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Financing the Deficit
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 _____ affect 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.
Words you may need:
austerity programmeïðîãðàììà æåñòêîé ýêîíîìèè
harshadj æåñòêèé, ñóðîâûé
"crowding out"âûòåñíåíèå ÷àñòíûõ èíâåñòèöèé ãîñóäàðñòâåííûìè ðàñõîäàìè