A deficit occurs when more money is spent than received. This term can be used to describe imports and exports, expenses and revenues, and liabilities and assets. Governments may intentionally spend in a deficit to help raise countries out of recessions or create future economic growth.
Types of deficit
There are two main types of government deficits:
- A budget deficit occurs when a country spends more than it makes in revenue, such as taxes, in a given year. Compounded yearly deficits are what constitute a country’s national debt.
- A trade deficit is when a nation’s imports are greater than the worth of its exports. When this occurs, more money and goods are leaving the country than coming in, a drop in that country’s currency and decline in the job market occur.