Question

What is the difference between the trade and budget deficit? How might an extended budget deficit lead to lower economic growth?

Answer 1

No one would expect the budget deficit and trade deficit to lock in, as other aspects of the national saving and spending identity spending and private savings will also change as well. Throughout the late 1990s , for example, the government budget balance changed from deficit to surplus, but the trade deficit remained high and increasing. During this time, the inflow of foreign financial investment has driven a increase in physical capital investment by U.S. firms. In the first half of the 2000s, the budget and trade deficits rose once again, but in 2009 the budget deficit rose while the trade deficit decreased.

A higher exchange rate, of course, makes it more difficult for exporters to sell their goods abroad while making imports cheaper, resulting in a trade deficit (or decreased trade surplus). As a result, a budget deficit will quickly lead to an inflow of foreign financial resources, a higher exchange rate, and a trade deficit.

The debt needs to be compensated. If that isn't the case, it causes debt. The deficit contributes to the debt each year. When the debt increases, the deficit is growing in two ways. Next, interest on the loan must be paid on an annual basis. It raises investment by not having any benefits. Second , higher debt rates will make it more difficult to raise funds. Creditors are worried with the willingness of the borrower to repay the debt. If this occurs, investors are calling for higher interest rates to have a better return on this increased risk. That also raises the deficit of every year

Governments are distinct from each other. They 're getting revenue from taxes. Our costs are of interest to the people who pay the taxes. Policy officials maintain public support for the delivery of services. If they want to continue to be elected, they must invest as much as they can. Much of the electorate are not involved in the effects of the debt. As a result, deficit spending raised US debt to unsustainable levels. The World Bank claims this turning point is when the country's debt to the gross domestic product ratio is 77% or higher.