Deficit spending facts for kids
Deficit spending is when someone spends more money than they have. Imagine you have $10, but you spend $12. That extra $2 you spent is a deficit! It's also called a budget deficit or just a deficit. The opposite is a budget surplus, which means you spend less money than you have. This idea can apply to a person, a company, or even a whole government.
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What is a Budget Deficit?
A budget deficit happens when the money going out (spending) is more than the money coming in (revenue). For a government, revenue mostly comes from taxes. Spending includes things like building roads, running schools, paying for healthcare, and national defense. When a government spends more than it collects in taxes, it has a deficit.
Why Governments Might Have a Deficit
Governments might choose to spend more than they earn for several reasons:
- Helping the economy: During tough economic times, like a recession, governments might spend more money to create jobs and encourage people to spend. This can help the economy recover.
- Big projects: They might need to fund large projects, like new highways, bridges, or research, which cost a lot of money.
- Emergencies: Unexpected events, like natural disasters or health crises, can require a lot of government spending.
How Governments Cover Deficits
When a government has a deficit, it often borrows money to cover the difference. They do this by selling special bonds to people, companies, and other countries. This borrowed money adds to the national debt.
Is Deficit Spending Good or Bad?
Economists, who are experts in how money works, have different opinions about deficit spending.
- Some believe it can be helpful, especially during a recession. They think it can boost the economy and prevent things from getting worse.
- Others worry that too much deficit spending can lead to problems. They might be concerned about the national debt growing too large, which could mean future generations have to pay more in taxes.
It's a complex topic with many different viewpoints!
Related pages
Images for kids
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Structural (blue) and cyclical (green) components are summed to give the headline deficit/surplus (red) for a hypothetical economy
