Responding to Budget DeficitsCreating Money
The government can pay for budget deficits by creating money. Creating money, however, increases demand for goods and services and can lead to inflation.
The government can also pay for budget deficits by borrowing money.
The government borrows money by selling bonds, such as United States Savings Bonds, Treasury bonds, Treasury bills, or Treasury notes. The government then pays the bondholders back at a later date.