Question

What is deficit budget?

Hint:

A deficit budget can help stimulate the economy in the short term, but persistent deficits may lead to a buildup of national debt.

Answer 1

Step 1: Defining Deficit Budget:
A deficit budget occurs when the government's total expenditures exceed its total revenues during a specific period. In other words, the government is spending more than it is earning, which leads to a budget deficit. The government may finance this deficit by borrowing or printing more money.
Step 2: Causes of Deficit Budget:
There are several reasons why a government may run a deficit budget:
- Increased Public Spending: Governments may increase their spending on infrastructure, defense, or social welfare programs, leading to higher expenditures.
- Economic Slowdown: During periods of economic recession, government revenues may decrease as people and businesses earn less and pay lower taxes. At the same time, the government may increase spending to stimulate the economy.
Step 3: Impact of a Deficit Budget:
Running a deficit budget over time can lead to increased public debt. If the government borrows extensively, it could lead to higher interest payments and potentially reduce its financial flexibility in the future.
Step 4: Final Conclusion:
A deficit budget is a situation where government spending exceeds revenue. It is often used as a policy tool during times of economic downturn, but if prolonged, it can lead to higher public debt.