In 2014, the US government spent $3.5 trillion while total revenues remained at $3.014 trillion leaving the country with a budget deficit of about $486 billion. This is the smallest budget deficit that the U.S. has operated under since the President’s election in 2008, resulting in a substantial improvement over the trillion-dollar deficits that have occurred in the country in years prior. In order to paint a picture of our debt, let’s observe one number: $18 trillion dollars and counting, i.e., otherwise known as our natural debt. However, the question that needs an answer is the following: What is deficit spending is and how does it work? Deficit spending is the amount by which government expenditure or outlay (i.e., purchased of goods and services, credits, grants and net interest on payments) exceeds the national revenue over a particular period of time. (Investopedia, 2015). Many Keynesian economists deduce that deficit spending is a necessary tool, specifically in the short run, as part of the government's fiscal policy to …show more content…
Government will reduce their savings to near zilch during a deficit period, due to borrowing monies in order to fund its excessive spending programs. This creates damaging issues in the process. For example, during emergencies, there will be no surplus to rely on in order to provide aid. As a result, the government will borrow from other nations to support this spending level, which comes with very high interest rates attached to it. To put it simply, this is borrowing money that you do not have and ‘we’ the consumer end up paying for goods and services at a higher price. Therefore, as prices start to rise, the economy shrinks and leads to inflation. When interest rates or inflation start to rise, due to the efforts of the government, it leads to what many economists term the “Crowding Out Effect” (Danby,