Assess whether a budget deficit would be good for the UK economy (9)
A budget deficit means that the government is spending more than it is
receiving in tax receipts. This means that in order to fund spending the
government must find ways of raising capital such as through bond
issuance, through foreign debt or other sources.
One reason a deficit might be good for the UK economy is that increased
short term spending may be necessary to prevent economic depression. A
recent example of this is the increase in government spending during the
covid pandemic in order to maintain employment and prevent seemingly
irreversible damage to the economy. One way the government did this
through supplementing wages (through a furlough scheme) so that firms
didn’t have to lay off workers.
It is arguable that if the government did not run a budget deficit that the
unemployment could have been extended to a point of severe, long-term
damage whereby the economy would suffer for generations and so
therefore a budget deficit in the short run would benefit the UK economy
in the long run.
On the other hand, ways of funding a short run government budget deficit
such as foreign debt may cause the UK economy harm in the future. This
is because it means that the Tax payers will be liable to higher interest
payments in the future. This means that in order to cover these interest
rates the government may want to increase taxes resulting in less
disposable income for consumers and so less spending, hurting long run
economic growth.
In conclusion, running a budget deficit be beneficial to the UK economy in
both the long and short run by preventing economic disaster but could
also hurt it through inhibited growth In the future.
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