Deficit Spending


DEFINITION of 'Deficit Spending '

When a government's expenditures exceed its revenues, causing or deepening a deficit. This excess spending needs to be financed through borrowing, likely from foreign governments. The increased government spending can help stimulate the economy as more money flows in, but the jump in borrowing can have an adverse effect by raising interest rates.

BREAKING DOWN 'Deficit Spending '

John Maynard Keynes was an advocate of deficit spending as a fiscal policy tool to help stimulate an economy in recession. During a recession, increased government spending can stimulate business activity, create jobs and spur consumer spending. This creates a multiplier effect in which $1 of government spending helps increase GDP by more than $1. Some complain that the negative effect of deficit spending is that interest rates will increase as the government borrows more. The higher rates make borrowing money more expensive and can stifle growth.

  1. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  2. Deficit

    The amount by which a resource falls short of a mark, most often ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects ...
  4. Rubinomics

    A combination of the words "Rubin" and "economics" that focuses ...
  5. Deficit Hawk

    Slang for someone who wants the government to keep the federal ...
  6. Austerity

    A state of reduced spending and increased frugality in the financial ...
Related Articles
  1. Bonds & Fixed Income

    A Look At National Debt And Government Bonds

    Learn the functions of the U.S. Treasury, and find out how and why it issues debt.
  2. Economics

    Exploring The Current Account In The Balance Of Payments

    Learn how a country's current account balance reflects the country's economic health.
  3. Bonds & Fixed Income

    6 Factors That Influence Exchange Rates

    Find out how a currency's relative value reflects a country's economic health and impacts your investment returns.
  4. Options & Futures

    Breaking Down The U.S. Budget Deficit

    Find out why this particular piece of national financing gets so much attention from the media and investors.
  5. Budgeting

    Current Account Deficits: Government Investment Or Irresponsibility?

    Deficit can be a sign of trouble for some countries, and of health for others. Find out what it means when more funds are exiting than entering a nation.
  6. Chart Advisor

    ChartAdvisor for November 27 2015

    Weekly technical summary of the major U.S. indexes.
  7. Investing Basics

    Why Interest Rates Affect Everyone

    Learn why interest rates are one of the most important economic variables and how every individual and business is affected by rate changes.
  8. Insurance

    Medicare 101: Do You Need All 4 Parts?

    Medicare is the United States’ health insurance program for those over age 65. Medicare has four parts, but you might not need them all.
  9. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  10. Technical Indicators

    Using Pivot Points For Predictions

    Learn one of the most common methods of finding support and resistance levels.
  1. What is the effect of a fiscal deficit on the economy?

    Fiscal deficits arise whenever a government spends more money than it brings in during the fiscal year. This imbalance, sometimes ... Read Full Answer >>
  2. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>
  3. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  4. How much money does Florida make from unclaimed property each year?

    Each year, goods such as money, financial investments and physical property are either auctioned off or appraised before ... Read Full Answer >>
  5. How much money does New York make from unclaimed property each year?

    According to the Office of the New York State Comptroller, types of unclaimed property accounts include bank accounts, wages, ... Read Full Answer >>
  6. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center