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Federal Budget Deficit - Essay Example
Author : johanborer
Finance & Accounting
Pages 5 (1255 words)
Name Tutor Course Date “Federal budget deficit” A budget deficit refers to the amount by which a company, individual or a government’s spending exceeds its income over a given period. It can be called a deficit or a deficit spending. Most governments across the world experience deficit budgets because of several reasons…
This paper intends to discuss the significance, causes and recommendations attributed to the federal budget deficit. The federal budget deficit is significant in a number of ways. This may be either short term or long term. For instance, in a slack economy, the major effect of an increase in the deficit is stimulation of demand and consequent raise of output (The Moment of Truth, 22). It is significant to note that, as the economy approaches full employment and tightening of the credit markets, the federal government borrowing tends to push up the interest rates. In the same regard, higher interest rates influence the cost of financing new investment in plant and equipment. More over, the federal deficit causes higher interest rates influence international capital flows and consequent effect on trade balance. In addition, the deficit causes increase in the exchange value of the dollar particularly the price of the imported products falls. The deficit also increase the size of the national debt consequently increase of the size of the annual interest payments make on the debt. On the other and, it should be noted that not all times the deficits pose disadvantages to the populace. ...