http://www.newsflash.org/2004/02/ht/ht004617.htm Economic Effects of a Budget Deficit * Increased borrowing
The govt will have to borrow from the private sector, it does this by asking the Central Bank to sell bonds and gilts to the private sector. * Higher debt interest payments
Selling bonds will increase the national debt. The annual interest payment is high, 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 increase AD and this may cause higher Real GDP and