Homework Lance
Topic: Budget Deficit
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Budget deficit
Budget deficit takes place when the government, businesses, or individuals budgeted beyond the available revenue available for their spending, in a duration of time. According to Aisen, and Hauner, (2013) claims that debt becomes the conglomeration of deficits which recurs in due course. Budget deficit gets caused through various reasons; others complex whereas some simple. However, the primary cause of budget deficit in government takes place when the government uses beyond the collection obtained from taxes. The study found that reduction in taxes might as well create deficits. Similarly, uncontrolled spending results in decreased revenue collected. Budget spending might take place even when the government fails to control its taxes or spending, (Gans, 2015).
Role of Keynesian model in raising the aggregate demand during budget deficit
The Keynesian model remains substantial in the management of demand. According to Shaviro, (2014), Keynesian economics supports the application of altering the level of government borrowing as a means of ensuring that the aggregate demands stay at the required level. Increased borrowing stimulates the demand when other sectors of the economy suffer fallen spending or weak finances. However, cases where crowding is never the scenario, fiscal policy becomes handy in countering against the impact economic cycle. Budget deficit relates to the unsustainability of a budget, which surmounts to inflation, Shaviro, (2014). There exist many methods that the government may engage to resuscitate the economy, including printing more cash. However, all their goals remain the same, to increase the supply of money to the market.
The government borrowing might result in development. Budget deficits might lead to positive impacts when applied to finance capital spending which causes national assets stocks to increase. For instance, when the borrowed funds get spent on state transport infrastructure, thus improving the supply section of the economy. Additional investments projected towards education and health bears positive impact towards employment and general productivity.
References:
Aisen, A., & Hauner, D. (2013). Budget Deficits and Interest Rates. Washington: International Monetary Fund.
Gans, J. (2015). Principles of economics. South Melbourne, Vic: Cengage Learning.
Shaviro, D. N. (2014). Do deficit$ matter?. Chicago: University of Chicago Press.
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