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Deficit Spending

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Deficit spending represents an overload of government expenditures over government revenue, creating a shortfall or deficit that needs to be financed. Deficit spending may be reflective of excessive buying of goods and services and establishing costly government programs. Deficit spending may also be the result of transferring grants to individuals and corporations. Acute deficit spending is a potentially perilous condition. For continued deficit spending may signal an impending inflation. Restoring the economic imbalance caused by deficit spending calls for government borrowing, also known as deficit financing. Thus, deficit spending often precedes an increased issuing of bonds or currency. Such remedies for deficit spending may stimulate the economy in the short run. In the long term, however, they may become impediments, as they push up interest rates.



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