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Reasons why Government borrow.
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[QUOTE="Jasz, post: 218060, member: 61772"] In order to understand why the government borrows, one must first understand what a "bond" is. A bond is a debt security offered for sale by private and public corporations (including the federal government) to investors in order to raise money for large capital expenditures. Bonds are typically issued with maturities of 20 years or more. The reason the government borrows money has to do with an excess of spending over revenue. As mentioned before, the government's income comes from tax revenue, which is how much money it collects from taxes. The problem arises when the federal government spends more on projects and initiatives than it generates through its tax revenue. The government borrows to finance its operations like: 1. To cover current budget deficits when receipts from taxes and other sources fall short of outlays. 2. To smooth out revenue flows over the business cycle, because tax revenue rises and falls with the economy. 3. To finance investments in infrastructure and other long-term government projects that have high upfront costs but low operating (or operating savings) costs. When this happens—and it does quite often—the federal government needs to make up for that deficit. To do so, they can either: • Sell assets (such as buildings or land). • Print more money (which is not ideal but has been done in the past). • Borrow money from investors by selling bonds [/QUOTE]
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