why printing money can solve budget deficit??

what is budget deficit??

why printing money can solve budget deficit??

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  • 立基
    Lv 5
    1 十年 前
    最佳解答

    A budget deficit occurs when an entity (often a government) spends more money than it takes in. The opposite is a budget surplus.

    An accumulated deficit over several years (or centuries) is referred to as the government debt. Often, a certain part of spending is dedicated to paying of debt with certain maturity, which can be refinanced by issuing new government bonds. That is, a fiscal deficit leads to an increase in an entity's debt to others. A deficit is a flow. And a debt is a stock. Debt is essentially an accumulated flow of deficits.

    Since debt is the total amount one owes, a deficit can also be defined as the amount by which a debt grows or a savings decreases. For instance, prior to the Second Gulf War, many Americans confused debt and deficit, believing that the United States government still had a massive deficit; in fact, the government had a sizable surplus. The deficit was gone, but the debt was still being paid down. Because the United States government counts money it collects through its Social Security program as income, many people had also become accustomed to the notion that the deficit was far larger than it actually was, yet, even removing Social Security funds, there was a surplus.

    Printing money by the government means to finance budget by monetary creation which may lead to inflation.This often occurs because the large taxes necessary to finance spending are politically infeasible, and there is insufficient demand for government debt, i.e. investors refuse to buy government bonds. In other words, no one will lend the government money. This is often the case in less developed nations whose economies are too small to tax effectively, but whose governments are considered too risky to attract investors willing to lend out of fear of default. Thus, monetary creation is often the only alternative available to finance spending.

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