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Deficit spending - Research Paper Example

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Deficit spending simply refers to a situation where the entire government expenditures of a particular financial year exceed the total revenue in that year. When such a case occurs, the excess needs to be financed from other sources in order to ensure smooth running of the…
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Deficit spending
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Download file to see previous pages Government spending spurs economic growth in the country. When we focus on the long run, this is basically a positive macroeconomic effect. Government borrowing from other countries is used to finance government projects. This leads to increase in national infrastructure and stocks. This promotes the growth of the country in the long-run period. Currently, the federal government is investing heavily in education and health sectors. They can be the best gainers with the expected increased government borrowing. All these benefits associated with deficit spending can be easily estimated through analysis on cost benefit (McConnell, 1996).
Most of the Keynesian economists attribute deficit as an appropriate tool for managing the aggregate demand levels in the country. This is because increased borrowing from other countries is an economic stimulus to demand in the country. This helps to stabilize the aggregate demand. However, these economists argue that the federal government should use and implement fiscal policies to contain. Besides this, managed levels of demand helps to sustain economic growth and reduce the general level of unemployment in the country.
Deficit spending is financed through public borrowing. This leads to increase in public debt which is later financed through the revenues collected by the federal government later in future. This is a burden to the public because it implicates negatively to their lives. In most cases, taxes are raised on basic commodities for the federal government to raise revenue to cater for this.
Increase in government borrowing leads to increase in public debt in the economy. From an economist point of view, a larger public debt results into high interest levels. Hence, the citizens of that particular country will be required to pay higher taxes in order to finance this debt in long term.
Public debt is mostly financed through taxes ...Download file to see next pagesRead More
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