Economics – Government and the macroeconomy - Fiscal policy | e-Consult

Budget Deficit vs. Budget Surplus:

A budget deficit occurs when a government's total spending exceeds its total revenue. This means the government is spending more money than it is bringing in through taxes and other sources. A budget surplus occurs when a government's total revenue exceeds its total spending. This means the government is bringing in more money than it is spending.

Reason for a Government Choosing a Budget Deficit:

A government might choose to run a budget deficit during a recession or economic downturn. During a recession, tax revenues tend to fall, while the government may need to increase spending on unemployment benefits, social welfare programs, and infrastructure projects to stimulate the economy. Running a deficit can help to boost aggregate demand and pull the economy out of recession. This is often referred to as Keynesian economics.

Reason for a Government Aiming for a Budget Surplus:

A government might aim to run a budget surplus to reduce national debt. High levels of national debt can make a country vulnerable to economic shocks and can limit the government's ability to respond to future crises. By running a surplus, the government can pay down its debt and improve its long-term fiscal health. A surplus can also provide fiscal flexibility for future spending priorities.