Question

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DISCUSS EFFECT OF A BUDGET?

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Answer 1

Answer:

A budget deficit is the annual shortfall between government spending and tax revenue. The deficit is the annual amount the government need to borrow. The deficit is primarily funded by selling government bonds (gilts) to the private sector.

Answer 2

Effects of a Budget Deficit :-

• A budget deficit implies lower taxes and increased Government spending (G), this will increase AD and this may cause higher real GDP and inflation.
• The negative impact of the budget deficit on the economic growth is because governments are short of the resources to meet their expenses in the long run.
• Their savings as well as revenues are not enough to meet their expenses.
• A budget deficit will tend to increase overall government debt. In turn, as government debt rises, so too do interest rates.
• As government borrows more, it needs to offer higher rates to attract investors.
• This is because a higher debt increases the likelihood of a potential default.