How_Money_Works_-_The_Facts_Visually_Explained

105104

GOVERNMENT FINANCE AND PUBLIC MONEY

Managing state finance

HOW GOVERNMENTS RAISE MONEY

Governments can raise funds to meet their spending

commitments in three different ways. Each strategy

has advantages and disadvantages.

When

proposed

spending is greater

than income, the

government may need

to borrow or even

print money. 75 %

of GDP: Libya’s

budget deficit—

the worst

in the world

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Welfare
De
fense
❯❯Ta xe s Governments
can levy taxes on
what the population
earns and owns, and
on foreign trade.
Taxes are safe, but
unpopular.
❯❯Borrowing
Governments can
borrow from their
own citizens—through
pension funds for
example—or from
abroad. But loans
incur interest charges.
❯❯Printing money
A government can
print its own money.
This seemingly simple
solution is rare because
of the risks it entails
(see pp.14 4 –5).
SAFE
LOW
POLITICAL
RISK
LOOKS
EASY
UNPOPULAR
INTEREST
PAYMENT S
HIGH
FINANCIAL RISK
US_104-105_Budget_constraint.indd 105 13/10/2016 16:18