DEFICIT VS DEBT
This happens when the government spends more than it collects in a single fiscal year.
What is a budget deficit?
This short-term benefit of deficit spending can prevent unemployment from spiking during recessions.
What is job creation?
This economic theory supports running deficits in recessions and surpluses in expansions.
What is Keynesian economics?
This represents the running total of all past deficits and surpluses combined.
What is the national debt?
Borrowing for these long-term projects can be considered “good” because they create lasting growth
What are infrastructure, education, or innovation investments?
This institution buys U.S. government bonds to manage interest rates and stabilize the economy, meaning the government partly owes money to itself.
What is the federal reserve?
This type of deficit persists even in strong economies
What is a structural deficit?
When the U.S. borrows heavily from abroad, this can emerge
What is a trade deficit?
As interest costs rise, governments face pressure to reduce this kind of spending
What are social programs?
Looking at U.S. history, these two major crises caused sharp spikes in annual deficits
What are the Great Recession and the COVID-19 pandemic?
When government borrowing drives up interest rates, private businesses may experience this effect that limits expansion
What is the crowding-out effect?
Greece’s 2009 fiscal crisis showed what can happen when governments rely too heavily on borrowing to cover budgets, forcing them into this painful policy response
What is austerity?
In federal reporting, this part of the deficit reflects the shortfall before interest payments, while this reflects the cost of past borrowing.
What are the primary deficit and net interest?
Persistent reliance on borrowing can trap governments in this
What is a debt spiral?
Persistently high deficits carry these three major risks
What are higher inflation, increased borrowing costs, and political and social instability?