Macroeconomics Study Set 62

Business

Quiz 16 :
Budget Deficits in the Short and Long Run

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Quiz 16 :
Budget Deficits in the Short and Long Run

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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.