When a business spends more than it earns, it must use credit or debt to cover the shortfall. When a country spends more than it takes in, it experiences a budget deficit. The country must borrow to make up the shortfall (called a fiscal deficit).
A budget deficit isn’t necessarily a bad thing. Countries that are expanding and expect more revenue in the future as a result will often experience budget deficits. The make up for the deficit, the country will issue bonds. This is similar to an asset backed loan. Of course, loans have interest that must be paid and so do bonds. If a country’s budget deficit gets out of control and it has to continually issue bonds, the country’s credit rating may fall, causing interest payments to increase. This can create spiral where the country is not able to take in enough revenue to meet its ever-increasing interest payments.
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