Explain how the Government of Canada finances its budget deficits.

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Expert Solution

The coronavirus pandemic sparked an explosion in Canada's federal budget deficit, which hit CAN $343 billion ($254 million) for the current fiscal year.
All deficits need to be financed. This is initially done through the sale of government securities, such as Treasury bonds (T-bonds). Individuals, businesses, and other governments purchase Treasury bonds and lend money to the government with the promise of future payment.

Spending cut and debt reduction should be top priorities for Canadian government.
While plenty of empirical evidence shows a negative relationship between government debt levels and economic growth, a close look is warranted at Public Debt and Growth. The recent International Monetary Fund study examined the relationship between public debt and economic growth for a group of advanced and emerging countries over almost four decades. It found that an increase in a country’s debt-to-GDP ratio leads to a decrease in per-person income growth.

Rahul Sunny answered 1 year ago

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