What is a budget deficit and how does it impact a country’s economy?

A budget deficit occurs when a government’s expenditures exceed its revenues, resulting in the need to borrow money to cover the gap. This borrowing can lead to an increase in national debt, which may impact the country’s long-term financial stability. A persistent budget deficit can lead to higher interest rates as the government competes with other borrowers for capital. However, in times of economic downturn, governments may run budget deficits as a means of stimulating growth by increasing public spending. If managed prudently, budget deficits can promote economic recovery, but large, chronic deficits may reduce investor confidence.