Question

Explain how federal government budget deficits occur and define the public debt.

Answer 1

The budget deficit arises when current spending exceeds the amount of revenue earned from routine operations. Many unpredictable events and policies can trigger budget deficits. Countries will combat budget deficits by rising taxes and cutting spending.

One of the key risks of the budget deficit is inflation, which is a constant rise in price rates. In the United States, a budget deficit that cause the Federal Reserve to release more money into the economy that feeds inflation. By the end of the day, there will be a contraction, which represents a downturn in economic activity lasting by least six months. Continued budget deficits will lead to inflationary monetary policies year on year.

Public debt is how much a government owes to lenders outside of it. Individuals, corporations, and even other governments may be involved. The word "public debt" is sometimes used interchangeably with the phrase "sovereign debt." Public debt generally applies only to national debt. Some countries do have debts owed by states , provinces and municipalities. Therefore, be careful when comparing public debts between countries to ensure that the meanings are the same. As it is called, public debt is the accumulation of annual budget deficits. This is the product of years of political officials investing more than they spend on tax revenue. The deficit of a country impacts its debt, and vice versa.