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One of the challenges faced by a number of countries today is how to finance their budget deficits, The problem is compounded by the fact...

One of the challenges faced by a number of countries today is how to finance their budget deficits, The problem is compounded by the fact that some of the alternatives available for financing the budget deficit might negatively impact on the country.

Required:
Citing one disadvantage in each case, briefly explain three measures that a government could undertake to finance a budget deficit.

Answers

Methods the government could undertake to finance a budget deficit.
1. Internal borrowing through the sale of treasury bills and bonds.
2. The government could also fall back on its reserves on the assumption that the problem in short term
3. External borrowing from international institutions or other countries.
4. Seeking donation or grants from donor countries.
5. Selling government property or concession of state property
6. Reduction in government expenditure through the cost cutting/sharing
7. Printing more currency

Disadvantages of the methods the government could undertake to finance a budget deficit
1. Increase interest rates.
2. Increase foreign debts
3. Increase inflation rate in the economy
4. Politics – where one
5. Reduces the morale of workers hence low productivity i.e. retrenchment of employees

Wilfykil answered the question on February 13, 2019 at 08:20

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