Deficit Spending

Deficit Spending

Introduction

Deficit Spending is due to a budget deficit. The budget deficit is a negative cash flow also called as "fiscal balance" negative, which reflects a situation in which state revenues (excluding repayment of loans) are less than its expenditure (excluding loans) in a year. The budget deficit "final", takes into account the debt service, that is to say, the interest paid on the debt and the portion of loans to be repaid during the year. The budget deficit stands there in the public deficit to which it belongs. Annual flows of budget deficits power the outstanding government debt, which in turn affects the level of the deficit increase in interest paid.

According to Keynesian economists, the budget deficit may have a positive economic impact towards the public spending that may play a role in stimulating economic activity (and support of the application). For economists either, liberal or neo-liberal, a budget deficit is always a sign of mismanagement of public funds, even though a debt economy, at both macro and microeconomic level, is explained as one of the basic modes of operation of capitalism .

In any event, it may be rational to borrow if the rate of return on public investment is higher than the interest rate paid on government debt.

Advantages

Though the concept of deficit spending is not favourable for the countries, it can be seen that there are certain advantages of deficit spending. While there is recession the country, it is important that the country experiences deficit as it will help in increasing the aggregate demand. If the government attempts to increase the taxes, it would be harmful for the economy and will cause problems. This will cause lower rate of growth and increased rate of unemployment. As a result of this, the negative multiplier will come into effect and ...