ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What Causes a Budget Deficit? Both levels of taxation and spending affect a government’s budget deficit. Common scenarios that create deficits by reducing revenue and increasing spending include: Tax structure that under taxes high-wage earners but overtaxes low-wage earners.

Detailed explanation-2: -Understanding the National Deficit A budget deficit occurs when money going out (spending) exceeds money coming in (revenue) during a defined period. In FY 2022, the federal government spent $6.27 trillion and collected $4.90 trillion in revenue, resulting in a deficit.

Detailed explanation-3: -If there is an increase in the government budget deficit: A The demand for loanable funds will increase, interest rates will increase, and the amount of borrowing will increase. When the government runs a budget deficit, government expenditures exceed tax revenues collected.

Detailed explanation-4: -A high value of deficit indicates that the government should cut down on its expenditures. The government may increase its revenue receipts by increasing tax income. Disinvestment which means selling off assets is another remedial measure to reduce revenue deficit.

Detailed explanation-5: -This deficit reduction caused lower growth, recession and unemployment. Increasing national debt. A budget deficit increases the level of public sector debt. Large deficits will cause national debt as a % of GDP to increase.