Question

In Australia, the Federal and State governments can raise funds by issuing bonds， please explain in detail why they invest these bond.

Answer 1

The Federal and State governments raise funds by issuing bonds for different purposes.

The Fed issues bonds to take the money out of circulation. Why? To bring inflation under control. Once the bonds are issued, people have less money to spend and this stops the price of goods and services from rising.

State governments issue bonds to raise funds for infrastructural projects such as building roads, airports, etc. In an emergency situation such as a war, the government needs money for military and defense purposes. So, the government borrows money from the people by selling bonds on the promise that it pays the principal with interest in future time.

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