Budget Deficits (Deficit Spending) and Surpluses

in LeoFinance4 months ago

a country has a budget deficit or simply deficit when it spends more than it receives from taxes and other forms of revenue the same way we say it has a budget surplus if it quote unquote saves money or what expenses are lower than government revenue you usually hear deficits being presented as a percentage of a country's gross domestic product and the value seem pretty low unfortunately that's quite misleading because as explained in another video the GDP is what we all accomplished together as participants in the economy whereas government revenue is just the percentage of that to simplify we'll assume the GDP of a country is a hundred billion dollars and that the revenue which actually collects is 25 billion so 25 percent of the GDP next let's say the deficit for that year was 4 percent of the country's GDP you which doesn't sound high if you put it like that however it looks worse if you compare it to the government revenue value a deficit the four billion means that 25 billion were collected but 29 spent in other words that a country spent 16% more than it collected which doesn't exactly sound sustainable especially since that money has to usually be borrowed thereby increasing the national debt deficit spending is one of the most politically charged topics and economics and while we don't yet know for sure whether it's good bad or somewhere in between this video helps you properly understand the terminology so that you can be an informed observer in political economic debates