Pros And Cons Of Deficit Spending

When it comes to deficit spending it results in finding out what the federal government can do to try and recover from a depression or recession in the economy. There are several advantages to the spending, just as many advantages leads to the amount of disadvantages as well. In addition, the crowding-out effect is utilized as well. I believe that deficit spending can both help and hurt the economy in the short and long terms. First, the definition and reasons behind deficit spending and how it works. Deficit spending is utilized by the federal government when they are required to maintain the standard of living for its citizens. This is done when the government is spending more money then they are collecting in taxes. Commonly this is found …show more content…
There are advantages to the leadership spending more then they are bringing in. According to Economics, if the government were to try and increase taxes in a recession in order to spend more this would only worsen the situation as a whole (2015). The reason for this is because if a individual is trying to spend more in the economy but is being taxed by the government at a higher rate it turns into a vicious circle and someone will have to budge. For this reason, many organizations believe that it is acceptable to spend in a deficit during a recession. Even though many believe that it is a good thing, there are also drawl backs to deficit spending in a …show more content…
They typically do this by deficit spending, there are several reasons why this is not a good idea. Due to the fact that during a recession leaders will tend to excessively borrow from other nations, this results in higher interest rates (Lyer, 2014). This can be a huge issue because if the market does not rebound from the recession they can be paying this higher rate for a lot longer than predicted. In turn, this will cause them to have to find another way to try and bring the market back from its decline. In addition, they also relate that costs start to rise as well. When the prices start to rise more than usual this leads to inflation and in turn the economy will suffer. This all results in a disadvantage to deficit spending my a government. The crowding out effect also comes into play when dealing with the economy and spending. The crowding out effect is the relation between public and private sector spending. This is an economic theory that rises in the public sector drive down or even eliminate private sector spending (Investopedia,2015). The result is that where the government is purchasing at a higher level it will result in the private sector not being involved in the buying of those goods. This could be related to the fact that the government is buying massive amounts of goods for a specific task or even to just keep the economy going.