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Deficit Spending - Term Paper Example

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All the nations, which are financially very strong are modifying and updating their economic policy most frequently than other nations so that they are able to…
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Deficit Spending
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Deficit Spending

Download file to see previous pages... Generally deficit spending refers to any kind of expenditure from the government side which exceeds the government earnings or revenues. In various countries the concept of deficit spending is different. The main difference is in the component of deficit spending. Generally government expenditures which are financed by the borrowing from the public categorized under the head of deficit spending in the USA. On the other hand, in countries like India, the concept of deficit spending is different. Here expenditure over the current revenues and non-banks borrowing are included under the head of deficit spending. (Gupta et.al, 2008, p.630)
Thoma (2011) in his review has mentioned that “When the government incurs debt, the important factor to consider is what the government doeswith the money relative to what the private sector would have done with it. If the money wouldhave been used for consumption goods or remained idle in bank accounts, and the government uses it to purchase needed infrastructure instead, then this is better from the perspective of future generations since it enhances the productive capacity that they will inherit.” (Thoma, 2011).
Deficit spending can create more jobs, specially the government jobs. It helps in supply of foods, unemployment insurance for the poor, in kind subsidies, medical benefits. (Mulligan, 2012). Spending on infrastructure, road, and transport helps the economy of the country to grow. In these cases the initial expense by the government can yield better result in the future.
Like advantage, the deficit spending also has some disadvantages as well. Government spending often discourages the high rate of employment as government subsidy sometime acts negatively in terms of employment. Government spending often hampers the private sector activity. A single unit government subsidy means one less unit investment in the productive sector of the ...Download file to see next pagesRead More
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