Money creation by government spending




State spending is part of the state's fiscal policy. Deficit spending involves the state spending into the economy more than it receives (in taxes and other payments) within a certain period of time, typically the budget year.

Deficit spending increases the money supply. The extent and the timing of budget deficits is disputed among schools of economic analysis. The mainstream view is that net spending by the public sector is inflationary in so far as it is "financed" by the banking system, including the central bank, and not by the sale of state debt to the public.

The existence itself of budget deficits is generally considered inflationary by mainstream economics, so policies are prescribed for the lowering of the deficit,note while heterodox economists such as Post-Keynesians treat deficit spending as "simply" a fiscal policy option.

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