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    s has a high opportunity cost because it requires future generations to pay higher taxes.

    Increased AD

    A budget deficit implies lower taxes and increased G, this wil

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    A budget deficit occurs when Government spending is greater than tax revenues. For political reasons a budget deficit often occurs. Politicians never gain votes by raising taxes and cutting spending. With many major World economies facing a large budget deficit. It is worth considering the main economic disadvantages of Government borrowing.

    Increased Borrowing

    The govt will have to borrow from the private sector, in the UK the government does this by asking the Bank of England to sell bonds and gilts to the private sector.

    Higher debt interest payments

    Selling bonds will increase the national debt, this is currently ?300 billion. The annual interest payments is approximately ?23 billion, this has a high opportunity cost because it requires future generations to pay higher taxes.

    Increased AD

    A budget deficit implies lower taxes and increased G, this will

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    ting spending. With many major World economies facing a large budget deficit. It is worth considering the main economic disadvantages of Government borrowing.

    Increased Borrowing

    The govt will have to borrow from the private sector, in the UK the government does this by asking the Bank of England to sell bonds and gilts to the private sector.

    Higher debt interest payments

    Selling bonds will increase the national debt, this is currently ?300 billion. The annual interest payments is approximately ?23 billion, this has a high opportunity cost because it requires future generations to pay higher taxes.

    Increased AD

    A budget deficit implies lower taxes and increased G, this wil

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    ng

    The govt will have to borrow from the private sector, in the UK the government does this by asking the Bank of England to sell bonds and gilts to the private sector.

    Higher debt interest payments

    Selling bonds will increase the national debt, this is currently ?300 billion. The annual interest payments is approximately ?23 billion, this has a high opportunity cost because it requires future generations to pay higher taxes.

    Increased AD

    A budget deficit implies lower taxes and increased G, this wil

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    >Higher debt interest payments

    Selling bonds will increase the national debt, this is currently ?300 billion. The annual interest payments is approximately ?23 billion, this has a high opportunity cost because it requires future generations to pay higher taxes.

    Increased AD

    A budget deficit implies lower taxes and increased G, this wil

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    s has a high opportunity cost because it requires future generations to pay higher taxes.

    Increased AD

    A budget deficit implies lower taxes and increased G, this will increase AD and this may cause higher Real GDP and inflation.

    Higher Taxes and lower spending

    In the future the govt may have to increase taxes or cut spending in order to reduce the deficit. This may cause reduced incentives to work

    Increased Interest rates

    If the govt sells more bonds this is likely to cause interest rates to increase. This is because they will need to increase interest rates in order to attract investors to buy the extra debt. If govt interest rates increase this will push up other interest rates as well.

    Crowding Out

    Increased govt borrowing may cause a decrease in the size of the private sector (see fiscal policy)

    Inflation

    In ext

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