Question

You read about how the government participates in deficit spending. What does this mean? Take this concept and apply it to your own life....what would deficit spending look like at your house? What would the affect of this kind of spending be?

Answer 1

The government often participates in deficit spending. This means that the amount that the government is spending is more than they are bringing in revenue. So, the government is spending more money than they have.

Answer 2

How would you respond to this when it says what would deficit spending look like at your house? I know you have to spend more than you make. Does the question look like it is looking for something specific?

What would the affect of this kind of spending be?
Would this be bankruptcy?

Answer 3

@jim_thompson5910

Answer 4

"I know you have to spend more than you make."

what do you mean by this?

Answer 5

Sorry I worded it wrong. When you spend more than you have coming in (money).

Answer 6

So what is one way a single person could deficit spend? Using what tool?

Answer 7

A credit card I guess?

Answer 8

yep which is basically a loan (usually a revolving line of credit)

as long as the loan is paid off, they are completely fine and financially healthy. They can go on to borrow funds in the future if they want.

If they don't pay off the loan, then they go into default and may go into bankruptcy if things get worse

Answer 9

So that's effectively what's going on with government deficit spending too. It's able to do this because it is paying off its loans slowly over time.

Answer 10

Oh so what you said above is essentially how someone or I answers "what deficit spending look like at your house" I guess examples would be buying expensive electronics, a new car, etc.

Answer 11

Thank you again :)

Answer 12

"I guess examples would be buying expensive electronics, a new car, etc."

Just because something is expensive doesn't make it deficit spending.

Answer 13

Sorry I mean some people buy more than they think they can afford until they get the bill and can't pay the basics never the less the "toys" that they want.

Answer 14

Let's say you earned $5000 for one month. If you paid $3000 for rent, utilities, insurance, etc (all the essential stuff you can't avoid) and then bought $500 worth of discretionary spending stuff (like CDs, books, movies, etc), you would spend a total of $3500.

5000 - 3500 = 1500 is the amount you have left over

Since this is a positive difference, you aren't in debt which means this isn't deficit spending

You could easily bump that $5000 to maybe $50,000 and be able to buy more expensive things without doing deficit spending

Answer 15

So I would stick to "buying more than what they can truly afford"

Answer 16

Ok thank you for taking the time to explain this to me I have a better understanding of deficit spending now :)

Answer 17

you're welcome