FINC 310 - Finance Project - Colorado Tech - 66 - 16091

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FINC 310 - Finance Project - Colorado Tech - 66

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Jun. 06, 2011

Federal, state and local governments issue securities in order to finance the deficit incurred by the government which is then used to finance part of government expenditure. Also, they issue and sell bonds to control the money supply of the economy. For example, when the money supply is high, inflationary pressure is there in the economy, which depreciates the dollar value hence, Federal Reserve sells bonds to decrease the money supply, with this inflationary pressure is reduced and dollar value increases. Also, issuance of bonds increases interest rates, with this the reserve requirements increases and banks have less money to lend to people, therefore, less loans are given to consumers, thus economy slows down. State and local governments issue bonds known as municipal bonds. They use the funds raised from issuance of bonds to extend statewide and local projects, these projects include maintenance and repairing of public facilities. Instead of raising taxes and damaging the state, local go