Quiz 33: Budget Deficits in the Short and Long Run

Accumulation of debt U.S. government was facing weaker economic growth, which led to an increase in depression in the previous years; this was followed by an increase in structural budget deficit and actual budget deficit. The recession in an economy was accumulated with anti-recession policy, and it increased the total debt of the economy to $14 trillion. Debt is owned by the government of United States, but eventually, this debt is passed to the citizen of United States. The increase in debt will be a burden to the future generation of America because the increase in interest payment will be transformed as a higher tax rate. This higher tax rate will be incurred by the citizens of America.

Budget surplus situation When deficit turns into surplus, the economy would use the extra surplus to pay for the nation's debt. This action could reduce the economy's national debt.

Meaning of deficit spending Deficit spending refers to a situation where the government expenditure exceeds its revenue. Impact of deficit spending Deficit budget does not necessarily ruin the economy's path, but the nature of the deficit spending can cause recession or boom in the economy. If the government uses the deficit spending for productive purpose, then this generates more revenue in the future. This extra revenue can be used to repay the national debt caused by deficit spending. If the government uses the deficit spending for other government consumption purposes like paying salaries, repaying interest rate, and so on, then this kind of deficit spending ruins the economy and the burden is shifted to the future generation.