shortfall that results when the federal government spends more in a fiscal year than it receives in revenue. To cover the shortfall, the government borrows from the public by floating long and short-term debt.
federal shortfall that results when the government spends more in a fiscal year than it receives in revenue. To cover the shortfall, the government usually borrows from the public by floating long- and short-term debt. Federal deficits, which started to rise in the 1970s, exploded to enormous proportions of hundreds of billions of dollars per year in the 80s and 90s. By the late 90s, revenues from an extended period of strong economic growth and soaring stock prices were applied to eliminate the deficit in accordance with budget balancing legislation which resulted in a federal surplus. Though this scenario did not come to pass in the 80s and 90s, some economists think that massive federal deficits can lead to high interest rates and inflation, since they compete with private borrowing by consumers and businesses. Deficits also add to the demand for money from the federal reserve bank.
