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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.
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Investopedia explains '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.
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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.
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Learn how a country's current account balance reflects the country's economic health.
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Learn the functions of the U.S. Treasury, and find out how and why it issues debt.
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Find out how a currency's relative value reflects a country's economic health and impacts your investment returns.
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Find out why this particular piece of national financing gets so much attention from the media and investors.
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