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Sunday, June 5, 2011

Deficit Spending

Deficit spending, also termed as budget deficit, happens when spending exceeds the income.
This deficit amount is spent by government or business by borrowing money and this whole process is called deficit spending.
If revenues of a nation are $ 10 billion while spending is $ 11 billion due to borrowing of $1 billion, and this amount $ 1 billion spent is deficit spending.
Whenever government has to spend more than its revenue, it borrows money to do so and this borrowed money makes deficit spending possible.
Deficit spending is necessary for economic stimulation as it brings more money in the economy but on other sided it helps interest rates to soar up, which adds to inflation.

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