Fiscal Policy and Deficit Spending - Why do deficits matter?

6 important questions on Fiscal Policy and Deficit Spending - Why do deficits matter?

Why are deficits significant for an economy?

They lead to a decrease in national savings and private investment.

What happens to national savings when there are large deficits?

Large deficits result in reduced national savings, impacting economic growth.

How does government spending relate to deficits?

Spending more than earnings indicates a deficit and leads to dissaving.
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What effect do deficits have on private investment?

They decrease the funds available for private investment in the economy.

How do deficits affect economic growth?

Economic growth slows down due to reduced investment from government borrowing.

What term do economists use to describe the reduced investment due to deficits?

Economists refer to it as the "crowding out" effect.

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