Question

Where does the government get the money when it wants to spend more than it gets?

Answer 1

When a government spends more than it collects in taxes, it runs a budget deficit and needs to borrow. This can lead to reduced financial capital available to private firms and potential trade imbalances and financial crises.

Step-by-step explanation:

When a government spends more than it collects in taxes, it runs a budget deficit. To make up for the difference between tax revenue and spending, the government needs to borrow.

This borrowing can substantially reduce the financial capital available to private sector firms and can lead to trade imbalances and financial crises.

For example, in 2009, the U.S. government experienced its largest budget deficit ever, as it spent $1.4 trillion more than it collected in taxes. This deficit was about 10% of the size of the U.S. Gross Domestic Product (GDP) in 2009, making it the largest budget deficit relative to GDP since World War II.