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ID: 1187920 • Letter: #

Question

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Suppose that the

share of U.S. GDP going to domestic consumption remains

constant. Initially, the federal

government was operating with a balanced budget, but this year it

has increased its spending well above its collection of taxes and

other sources of revenues. To fund its

deficit spending, the government has issued

bonds. So far, very few foreign residents

have shown any interest in purchasing bonds.

"MsoListParagraphCxSpFirst">a.)

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What must happen to induce foreign residents to buy the bonds?

"MsoListParagraphCxSpLast">b.)

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If foreign residents desire to purchase the bonds, what is the most

important source of dollars to buy them?

If the spendings by the government induce future growth , the foreign residents may be tempted to buy US bonds.

banks...

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