Governments need to keep track of their spending just like we all do. If they spend more than they earn, just like our bank balance goes into the red, so does theirs! This is commonly referred to as a budget deficit: where government spending is greater than government revenue.
A new record was set in the US last month, where the budget deficit for June came in at $864 billion, the highest deficit for a month ever recorded in US economic history. With a previous record set in April this year of $738 billion, the US economy is well on their way to setting a new record for the largest ever annual deficit by the end of 2020.
Fiscal policy, where governments spend money in their economies to combat economic difficulties, has been the favoured tool in the US since the beginning of the Covid-19 crisis. It comes as no surprise then that the current balance sheet is so unbalanced.
Since the end of march, when the US government passed a bill to provide over $3 trillion in economic relief, emergency funding has been filtering throughout the US economy in an attempt to keep the economy afloat.
In addition to the huge levels of spending, government tax revenue has also taken a hit as unemployment rates soar, sales have plummeted, and many businesses have been forced to close down.
THINK LIKE AN ECONOMIST!
Q1. What is meant by the term budget deficit?
Q2. Explain what the increased government spending is likely to have been spent on.
Q3. Analyse the reasons why government revenue has also decreased during the Covid-19 economic crisis.
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