Budget deficit

Budget deficit is when total governmenr spending exceeded total tax revenue .



Causes of budget deficit:

• increasing goverment spending.

Government spending lot more mainly on health, education, transport and defence.

• weaker economy

When the economy experience deflation, people have less confidence about future or afraid that may lose their jobs, they tend to save more , thus spend less and generate less indirect tax revenue. Unemployment will rise as there is less aggregate demand for goods and services, thus less direct tax are gernerated and goverment might spend more on Job seeker`s allowances. High interest rate tends to reduce aggregate demand, since it is costly to borrow and people are more likely to save money instead of purchasing, firms would not like to invest since the interest rate is high, Again, it reduced revenue from taxation.High exchange rate, SPICED, since the imports are cheap, people are more likely to spend on imports, thus less tax revenue.