Effects of Long-Term Deficit Spending: Analysis and Economic Impact

This report examines the effects of long-term deficit spending, focusing on its implications for the economy. It discusses the role of government, particularly in the context of Keynesian economics, and analyzes how deficit spending impacts investment, interest rates, and aggregate demand. The report highlights the potential consequences of long-term deficits, including the need for increased tax revenues, increased government spending, and the potential for reduced economic growth. Furthermore, it explores the relationship between deficit spending and shortfalls in aggregate demand, emphasizing the importance of government intervention to stimulate the economy during downturns. The report also references scholarly articles to support its analysis and provides a comprehensive understanding of the complex economic issues surrounding government debt and fiscal policy.

Effects of long-term deficit
During the hardship, economist Maynard Keynes evaluated that the federal government not only
responsible for reviving the overall economy of the country but is often the single solution when
a recession in the country grows deeply (Li, 2013). Effects of long-term deficit spending are
following:
 Low-interest rate.
 Lack of investment.
 Shortfalls in aggregate demand
Maynard Keynes concluded that the main problem behind the recession is a lack of investment in
different business activities despite low rates of interest. When both the consumers and business
are not able to awaken the economy of the country, the only way through which government can
expand the level of investment is spending and borrowing. Spending of government can
reactivate the poor economy and attract new investment to grow in the near future. During the
poor economy, the government spends a huge amount in collected tax revenues through deficit
spending. On the other hand, economists of the Keynesian conclude that deficit spending is
required in case of economic downturn (Denes, 2013). Deficit spending by the government
allows them to fulfill shortfalls in aggregate demand and also allow them to pay deficits during
the time of economic prosperity. A big deficit helps the government in making easy the short-
term economic pain. Various economists consider that high deficits in the budget will minimize
the growth rate of an economy in the future with higher interest payments, taxes, and growing
dependency on foreign capital.

References
Li, W., Huang, R., Shetty, R. A., Thangthaeng, N., Liu, R., Chen, Z., ... & Forster, M. J. (2013).
Transient focal cerebral ischemia induces long-term cognitive function deficit in an experimental
ischemic stroke model. Neurobiology of disease, 59, 18-25.
Denes, M., Eggertsson, G. B., & Gilbukh, S. (2013). Deficits, public debt dynamics and tax and
spending multipliers. The Economic Journal, 123(566), F133-F163.