Question

The government budget constraint​ is:

A. DEF = G - T = ∆MB - ∆B

B. DEF = G − T = ΔMB + ΔB

C. DEF = G + T = ΔMB + ΔB

D. DEF = G + T = ΔMB − ΔB

Answer 1

Solution:-Option B is correct

B. DEF = G − T = ΔMB + ΔB

Explaination:-DEF = G − T = ΔMB + ΔB is correct .The government budget constraint​ is mainly deals with the two important constraints If the government deficit is financed by an increase inbond holdings by the public, there is no effect on themonetary base and hence on the money supply. But if thedeficit is not financed by increased bond holdings by thepublic, the monetary base and the money supply increase.