The Definition and Impact of a High Budget Deficit on the U.S.

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Creating and maintaining a budget is key to successfully saving money. A budget will help you to plan ahead and help to make future decisions about where your money goes. Budget constraints are a fact of life that everyone faces at some point in their life. Our parents and then society warn us that we cannot spend more of our income than we have. Almost everyone has to accept that they have limited resources. As with households, governments must deal with limitations related to the spending of monies they can expect to receive as revenue in the foreseeable future. The government has the option to increase revenue by increasing the percentage of income tax of private citizens and businesses or the government can chose to borrow funds by issuing bonds. The budget deficit is described as the difference between what the government spends and what the government earns in revenue. Government spending consists of salaries for government employees, defense spending, aid programs, and other cash outflows. Government revenue primarily consists of taxes. When the government spends more than they receive in the form of revenue, a budget deficit occurs. The causes and the implications for long-term economic growth due to a high budget deficit on the economy, along with the role that fiscal and monetary policy plays, will be defined and explained. The development of a increasing budget deficit has been caused by a weak economy and the result of increased government spending in areas such as health care, education, defense spending, low interest rates, lowering taxes, and the increase in welfare and entitlement programs. A few short years ago, the budget deficit was approximately $400 billion. This equates to three and a half percent of the GDP (Orszag & Pechman, 2004). The forecast, which extends beyond 2014, anticipates the cost of entitlement programs to consume
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