What is Budget Deficit?
It is a financial situation that occurs when an entity has more money flowing out than coming in, also known as government spending exceeds income.
Government budget deficit is also known as negative balance. The term “Benefit Deficit” is most commonly used to refer to government spending rather than business or individual spending.
When it refers to federal government spending, a budget deficit is also known as “national debts.” The government budget balance, public budget balance, or public fiscal balance, is the overall result of a country’s general government budget over the course of an accounting period, usually one year. It includes all government levels (from national to local) and public social security funds.
The budget balance is the difference between government revenues and spending.
Government budget deficit is also known as negative balance. The term “Benefit Deficit” is most commonly used to refer to government spending rather than business or individual spending.
When it refers to federal government spending, a budget deficit is also known as “national debts.” The government budget balance, public budget balance, or public fiscal balance, is the overall result of a country’s general government budget over the course of an accounting period, usually one year. It includes all government levels (from national to local) and public social security funds.
The budget balance is the difference between government revenues and spending.
What if the government doesn't control their spending?
They will keep using the money, thus will over spend their money.
Which results in not enough money to cover and use for the next few year. For example, Japan is good at planning their yearly expenses and the country is able to avoid over spending.
If a government is unable to solve the problem, it is because of over spending, they need to borrow the money from either within their country or outside their country, this will cause country owe more money than the past.
If government borrow money with others it becomes a debt or liability known as “national debts”. If government doesn't have enough money to pay, budget per year will deficit.
How does a government finance its budget deficit?
Government budget deficits can be financed by two ways:
i. External borrowing - Take loan from other countries.
ii. Internal borrowing - Issue bonds to the public or use their revenue to sell to the foreign exchange reserves.
Either cutting spending, raising taxes or a combination of the two. Deficits must be financed by borrowing money. Interest must be paid on borrowed funds, which worsens the deficit.
Written by: Wong Yaw Li 0310539
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