Dec 25, 2020
What is a Budget Deficit?
Cccurs when government expenditures exceed revenues from taxes and other sources.
Public savings are also referred to as budget surplus. When public savings are negative, the government is said to be running a budget deficit.
Increase aggregate demand
Boost the economy during a recession
Increase government spending
Higher taxes in the future
Higher interest rates and bond yields
Ricardian Equivalence Theory
Argues that using budget deficit or borrowing to stimulate the economy exerts no effect.
Crowding Out Theory
An increase in government spending and borrowing leads to a decrease in investments from the private sector.
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