A government needs to finance a new public project. It can either issue bonds that require it to pay 5% annual interest to bondholders, or it can print new physical currency to cover the project's costs. Focusing solely on the direct costs of borrowing, why is printing currency a less expensive option for the government than issuing bonds?
0
1
Tags
Economics
Economy
Introduction to Macroeconomics Course
Ch.7 Macroeconomic policy in the global economy - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Analysis in Bloom's Taxonomy
Cognitive Psychology
Psychology
Related
A government needs to finance a new public project. It can either issue bonds that require it to pay 5% annual interest to bondholders, or it can print new physical currency to cover the project's costs. Focusing solely on the direct costs of borrowing, why is printing currency a less expensive option for the government than issuing bonds?
Government Financing Decision
Government Financing Methods
When a government prints new physical currency to pay for its expenditures, it is essentially borrowing from the public at a zero interest rate, making this a completely cost-free method of government financing.