Posts Tagged ‘Amount Of Money’

The National Debt

Thursday, September 17th, 2009


We have seen that the use of government fiscal policy to stimulate the economy during recessions requires that the government borrow money (mostly through bond issues) in order to finance its budget deficits. The total amount of federal government debt thus incurred – the amount of money owed by the federal government – is called the “National Debt.” By 1983 the National Debt will amount t over $100 billion, or nearly $4000 for every man, woman, and child in Canada.

The National Debt has, over the years, been the subject of a great deal of misunderstandings, fears, myths and political hypocrisy. Many Canadians believe, for instance, that the National Debt is owed to other countries and that Canada may go bankrupt because of it. Both of these ideas are myths. On the other hand, few Canadians appreciate the real dangers concerning the National Debt. We will examine first the myths, then the real dangers.

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The Government Can Print the Money

Monday, September 14th, 2009


Another way to raise the funds for federal budget deficits is to create new money (the popular term is print money) for the government to spend. While a growing economy requires a larger volume of money in circulation  (called the “money supply” by economist), it is dangerous to increase the money supply too quickly. The inevitable result of such a policy would be severe inflation, as the excessive amount of money in circulation forces prices up rapidly. Thus, while it may be tempting for the government to simply “print money” to finance its budget deficits, this should be done only within limits, so as to avoid increasing the money supply by more than the economy can absorb without rapid inflation.

In practice, it is common for budget deficits to be financed by a combination of borrowing and “printing” a practice that can be economically beneficial as long as the “printing” of money is kept within reasonable limits.

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