Impact of Budget Deficit Policy

Deficit spending refers to government spending that exceeds federal income and taxes over a period of time. The government can increase borrowing to obtain money from taxes or from foreign governments. The money that is borrowed is then put back into the economy through government spending. While deficit spending will increase government debt, it is believed to stimulate the economy to end a recession. Deficit spending has several advantages and disadvantages to government borrowing.

A fiscal deficit is when a government's total expenditures exceed the tax revenues that it generates. A budget deficit can be cut by either reducing public expenditure or raising taxes. In this essay, I am going to analyse the benefits and costs of increasing tax rates to reduce fiscal deficits instead of cutting government expenditure.

Deficit spending refers to the extent at which the government expenditure exceeds revenue over the financial period. This is the opposite of budget surplus. We may apply the term to an individual, private company or government budget (Brux, 2011).

The Federal deficit is an annual concept referring to the shortfall between Federal revenues and expenditures in one year’s budget. The Federal debt is the accumulation of borrowing which results from the series of deficits minus any surpluses.

Deficit spending will occur when the government or even a business spends more money that what it makes in revenue (“Governmental Deficit Spending,” n.d.). It seems like this technique would only have to be used every once in a while. However, deficit spending is a fairly common practice by the government and many businesses, but could spell doom if there is failure to plan accordingly when paying off the debt (“Governmental Deficit Spending,” n.d.). For the government, it is used as an instrument to stimulate economic growth while asserting it still has some type of financial stability (“Governmental Deficit Spending,” n.d.). There are great advantages the government can claim as being beneficial for the economy when practicing deficit spending.

In our textbook, “Principles of Macroeconomics,” the relationship between debt and deficit is described. A deficit is a shortfall in revenue for a particular year’s budget. Whereas, a debt is the total of all accumulated and unpaid deficits. An outlay is an amount of money spent on something. The federal government outlays are divided into government outlays and mandatory outlays. Government outlays are the part of the government budget that includes both spending and transfer payments. Mandatory outlays constitute government spending that is determined by ongoing long term obligations. Of the two, mandatory outlays is the largest portion of the federal budget. Lastly, Discretionary outlays compromise government spending that can be altered when the government is setting its annual budget. A budget surplus occurs when revenue exceeds outlays. A budget deficit occurs when government outlays exceed revenue.

The Federal budget deficit is the amount of spending by the Federal government that is in excess of how much money the government brings in annually. While the Federal budget deficit has steadily decreased overall during the past fifteen years, our Federal debt continues to grow at a drastic rate. A review of how the Federal deficit has evolved over the past fifteen years, the rate of growth of the Federal debt during that same period, and how the two are connected will better explain this phenomenon.

The underlying truth of deficit spending is the same whether it is used in finance, economics or government that the more is spent, the less income is made (Buzzle, 2014). Many economists argue that deficit spending will hinder economic growth while others disagree. Deficit spending has been the topic of debate for a very long time. Deficit spending is “when government's expenditures exceed its revenues, causing or deepening a deficit. This excess spending needs to be financed through borrowing, likely from foreign governments. The increased government spending can help stimulate the economy as more money flows in, but the jump in borrowing can have an adverse effect of raising interest rates” (Investopedia, 2013). In simpler terms, deficit spending is when a governing body of a nation needs to borrow money from other nations due to the nation being in a recession. Governments borrowed against future revenues so that they are able to finance domestic welfare spending before the twentieth

The federal budget deficit is where government spends more than it receives. This deficit is financed either through borrowing or issuing money. The U.S. Treasury has borrowed trillions of dollars to rescue the financial system. When compared to other countries the sum of money is greater than what other countries borrow. Questions like who holds most of our debt and where is most of the money spent will be answered in this essay.

Some say you have to spend a dollar to make a dollar, when it’s our government its called deficit spending. Deficit spending is the result in the government spending more during a period of time then they make back in revenue causing a debt. This type of spending is normally during an economic recession and is justified in order to give the economy a jump-start in reviving. The validation of this is to stop the economy from losing more money as individuals become unemployed resulting in lose of taxable revenue. This drastic strategy has its advantages and disadvantages for both long term and short-term economic effects. “There are those that argue that government borrowing and spending would create jobs and induce economic growth which would lead us out of the recession. Conservative economists on the other hand argue that government spending causes high interest rates which in turn curbs investment and economic growth.” (Hassan and Nassar, 2015) While it may help create more jobs, wages and programs it can also cause taxes and interest rates to rise. If a consumer cant afford the inflated economy then the new job starts to seem obsolete.

However, to some, it is considered a controversial political issue a negative expenditure by the federal government and sees as an effect to citizens and the loanable market. The excessive government spending lead to a budget deficit the opposite of deficit spending. Assume an individual spends excessively, there is the tendency of borrowing from someone to continue the spending. Today, several countries borrow from wealthy nations because of their economy's strength. Deficit spending does not allow saving or interest earned due to debt. For instance, most lending from another country comes with a high-interest rate. It also leads to lower economic growth. The spending can sometimes be beyond what is available in the yearly budget considered

When a government’s spending exceeds its revenues causing or deepening a deficit it is called deficit spending. Deficit spending is only one of numerous tools used to help manage the economy. Deficit spending is presumed to stimulate consumer demand by helping the consumer to obtain more money to spend, in turn, the demand of product will rise. There are advantages and disadvantages to deficit spending that we will discuss further below.

For as long as Americans can remember there has always been a federal deficit. In fact, the only time in American history when there was no federal debt was under president Andrew Jackson, and it only lasted a single year(Wall Street Journal). The federal government never managed to pay off the debt again, although some administrations, like Coolidge’s and Clinton’s, have managed to run brief surpluses(Wall Street Journal). Yet today there seems to be no limit on the debt and deficit spending, and a key question has been pressed into the forefront of politics and fiscal policy, “is

Fiscal deficit arises when the government spends more money than they are bringing back during a particular fiscal year. There is no clear common consensus regarding the effects of fiscal deficit. Some economist argue that due to fiscal deficit, the private investment and spending is reduced, there is change in interest rates, decrease in the exports and increase in imports and due to all these, it leads to higher taxes or inflation or both.

The difference between total revenue and total expenditure of the government is known as Fiscal Deficit. Fiscal deficit is expressed as a percentage of GDP(Gross Domestic Product) of a country. It is an indication of the total borrowings needed by the government. Borrowings are excluded while calculating the total revenue. Fiscal deficit usually occurs on account of revenue deficit or a major hike in capital expenditure.