Deficit spending requires the government to take on debt.
Further Explanation:-
Deficit spending takes place when expenditures made by the government are higher than the revenue the government is earning which it collects during the fiscal period and this causes and damages the balance of debt taken by the government. Most of the time, government deficits are financed by the sale of public securities such as government bonds. Many economists even think that government deficits are used as a tool of stimulative fiscal policy. Deficit spending is known to be an accounting phenomenon and the only way to indulge in deficit spending takes place when revenues decline because of the fall in expenditures. If we talk about demand-side economic theory, the Government can commence deficit spending post economy enters a recession. Deficit spending is linked as a pro-economic policy apparatus and that is possible because of overtime and this tactic has been positively connected to GDP. Many economists also believe that the effects related to the spending of a deficit, if not checked can be a threat to the growth of the economy.
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Answer Details
Grade – High School
Subject – Economy
Chapter – Deficit Spending
Keywords –Deficit Spending, Government, Public securities, Connected, GDP, Threat, Economy, Revenue, Decline, Theory, Stimulative.
