Question

Discuss the long term implications from the large federal budget deficits amassed over the past five years and the growth in the national debt.

Answer 1

Budget deficit refers to the situation when budget expenditure of the government are greater than the budget receipts. High budget deficit leads to greater fiscal deficits and greater borrowing. It gives a warning to the government either to cut the expenditure or increase its revenue. When it becomes increasingly difficult to increase tax receipts the country is compelled to cope with high budget deficit through borrowings. While borrowing increases her liabilities, disinvestment reduces her assets. The rising national de debt is a matter of concern as it has the ability to push the economy in inflation if the government follows deficit financing. It also increases its foreign dependence and accumulates burden for the future generation by the way of increased interest payments.