Final answer:
The factors influencing government deficits and debt include economic cycles, government borrowing, and fiscal policy, impacting national debt and economic growth.
Step-by-step explanation:
When discussing government deficits and debt, it is crucial to understand that a government's financial health is closely tied to the state of its economy. A budget deficit occurs when a government spends more than it collects in taxes during a given year, while a budget surplus is the opposite, with tax revenues exceeding expenditures. The sum of these deficits and surpluses over time constitutes the national debt. Economic cycles influence these fiscal outcomes; during recessions, deficits are likely to increase due to lower tax revenues and higher spending on social support programs, whereas in times of economic growth, surpluses may occur. Government fiscal policy, particularly borrowing and spending activities, directly impacts businesses and trade balances. Prolonged deficits absorb funds that could otherwise be available for private investment, affecting economic growth. Furthermore, persistent deficits can trigger high inflation, capital inflows, exchange rate volatility, and stress on the financial system.
Historically, the U.S. has accumulated debt during wars and attempted to reduce it in peacetime. However, there has been a shift where substantial debt has been accrued even during peace, for example, in the 1980s and early 1990s, followed by brief surpluses and returning to deficits, especially significant during the 2008-2009 recession. It's also noted that government borrowing can sometimes correlate with private investment trends.