Basics about Deficits National debt: total amount owed by
government Budget deficit : government spending minus government
revenue Typically financed by issuing government bonds Size
measured as a percent of GDP Rises during recessions regardless of
policy due to decline in government revenue and increase in social
welfare payments Structural deficit : deficit if the economy was
operating at its potential
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Impact of Deficits & Debt Depends on size and method of
financing Domestic financing tends to crowd out other borrowers
Foreign financing leads to stronger currency and larger trade
deficit May also create dependence on foreign funds, which tend to
be more volatile Central bank financing puts upward pressure on
inflation Whats too high?