Budget Deficits
Definition
Budget deficits occur when a government spends more money than it collects in revenue during a specific period, usually a fiscal year. This leads to an increase in the national debt.
Analogy
Imagine you have a monthly allowance of $100, but you end up spending $120 every month. The extra $20 is your budget deficit, and if this continues, you will accumulate debt over time.
Related terms
National Debt: The total amount of money that a government owes to its creditors due to accumulated budget deficits over time.
Fiscal Policy: Government decisions regarding taxation and spending that aim to influence the economy.
Balanced Budget: When government spending equals government revenue, resulting in no budget deficit or surplus.
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