What Are The Pros And Cons Of Deficit Spending
The Worst Best Solution
“The Federal Government should never run a deficit. There should be a law enacted to state this.” Critically evaluate this statement. Ever since John Maynard Keynes introduced Keynesian economics he has changed the policies of governments. The idea that during a recession, the government can stimulate the economy by intentionally entering a deficit. Deficit spending occurs when a government spends more then its revenues during a fiscal period. There are both positives and negatives to deficit spending, but the reality is that today many countries are in debt like Canada which is $652,158,787,462.61 in debt. We are taught that debt is bad, but when it is used as a tool to promote prosperity the pros out weigh the cons. …show more content…
Why would you choose to go into debt? A budget deficit restricts the amount of money that the government can spend on future projects. Any revenue made will be spent on interest payments, which will limit future opportunities for projects that can produce better results. If the government is already in a recession and still having loans to pay will cause businesses to fail. Unfortunately, all revenue made will go to paying their loans which could have been spent on buying products from businesses, stimulating the economy. Another con of deficit spending is that it can reduce investments in a nation. The nation will have difficulty building basic infrastructure. As a result, investor will not buy stocks in local companies or build factories in the country. This will reduce the governments revenue and make it more difficult to pay off their existing and future debt. Running a budget deficit will eventually lead to a lost in sovereignty. Smaller nations borrow money from international banks to finance their deficit. A last resort would be the International Monetary Fund, which might require a nation to change its laws and policies to receive loans. A country may even have to sell its land to pay off its
“The Federal Government should never run a deficit. There should be a law enacted to state this.” Critically evaluate this statement. Ever since John Maynard Keynes introduced Keynesian economics he has changed the policies of governments. The idea that during a recession, the government can stimulate the economy by intentionally entering a deficit. Deficit spending occurs when a government spends more then its revenues during a fiscal period. There are both positives and negatives to deficit spending, but the reality is that today many countries are in debt like Canada which is $652,158,787,462.61 in debt. We are taught that debt is bad, but when it is used as a tool to promote prosperity the pros out weigh the cons. …show more content…
Why would you choose to go into debt? A budget deficit restricts the amount of money that the government can spend on future projects. Any revenue made will be spent on interest payments, which will limit future opportunities for projects that can produce better results. If the government is already in a recession and still having loans to pay will cause businesses to fail. Unfortunately, all revenue made will go to paying their loans which could have been spent on buying products from businesses, stimulating the economy. Another con of deficit spending is that it can reduce investments in a nation. The nation will have difficulty building basic infrastructure. As a result, investor will not buy stocks in local companies or build factories in the country. This will reduce the governments revenue and make it more difficult to pay off their existing and future debt. Running a budget deficit will eventually lead to a lost in sovereignty. Smaller nations borrow money from international banks to finance their deficit. A last resort would be the International Monetary Fund, which might require a nation to change its laws and policies to receive loans. A country may even have to sell its land to pay off its