Deficit Spending

Topics: Macroeconomics, Unemployment, United States Pages: 4 (826 words) Published: January 25, 2015
Deficit Spending

Deficit Spending
American Military University
Deficit Spending
Deficit spending is defined as the “amount by which a government, company, or individual’s spending exceeds its income over a particular period of time” (InvestorWords, 2014). This is the practice of borrowing money to increase spending. The increase in spending is meant to add a flow of money into the economy to stimulate growth. By borrowing money, governments feel that the positive returns outweigh the negative returns and seek to reverse the effects of a recession. Advantages to deficit spending are the long term effects of the money spent appropriately. Individuals with the same access to borrowing large sums of money would be faced with spending the money or investing the money. Investing does not inject money into the economy while consumer spending directly affects the economy. The government can borrow money for the soul purpose of spending on government programs, infrastructure, and sustaining current program viability. Money spent on government aid programs helps keep these programs active while assisting those requiring the program assistance. The infrastructure can be enhanced creating employment which drops the unemployment rate and creates consumer spending. And borrowing money can keep long term government programs functional for individuals seeking returns near retirement. These help keep consumers positive about the economy and are meant to keep consumers spending. The borrowing is spark that starts the boost in economy, while the consumption by consumers is the true reward of deficit spending. A disadvantage of deficit spending is the possibility of creating a worse situation than the one a government is trying to escape. As a government or individual borrows money there are interest rates associated with paying off the debt. When an entity borrows more money than it can realistically sustain, the debt ball increases at exponential rates....

References: What is Deficit Spending? definition and meaning. (n.d.). Retrieved from http://www.investorwords.com/1373/deficit_spending.html
Deficit Spending Definition | Investopedia. (n.d.). Retrieved from
http://www.investopedia.com/terms/d/deficit-spending.asp
Crowding Out Effect Definition | Investopedia. (n.d.). Retrieved from
http://www.investopedia.com/terms/c/crowdingouteffect.asp
Bureau of Labor Statistics Data. (n.d.). Retrieved from
http://data.bls.gov/timeseries/LNS14000000
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