DEFICIT SPENDING

When a government's expenditures exceed its revenues, causing or deepening a deficit. The increased government spending can help stimulate the economy as more money flows in, but the jump in borrowing can have an adverse effect by raising interest rates. John Maynard Keynes was an advocate of deficit spending as a fiscal policy tool to help stimulate an economy in recession. During a recession, increased government spending can stimulate business activity, create jobs and spur consumer spending.

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