A budget surplus is appropriate when the economy is in the growth phase of the economic cycle. In a recession, demand is depressed, and it is expected to have a budget deficit. Trying to attain a budget surplus in a recession will involve higher taxes and lower spending – but these policies could make the recession worse. Therefore, it is better to wait until the economy recovers, and automatic fiscal stabilizers improve (higher growth automatically leads to higher income tax revenues)
The government would tend to relying on borrowing from other foreign country when they faced a budget deficit. The crowding out effect started which would cause a huge burden to the country that is government did not allocate enough money for public goods and services, which will influence the economic growth. The country will have a wider deficit and higher debt pressure. (Ingram, n.d.)
The adage “money doesn’t grow on trees” applies extraordinarily well when discussing budget deficits; this money must come from somewhere. A government can borrow more money from countries or other international institutions with less debt. Two popular way for governments to fund their overspending are through issuing government bonds and increasing federal taxes. A government can borrow more money from
The two words deficit spending doesn’t sound like a positive meaning, when the two words are used together in a sentence. Deficit spending is when government’s purchases surpassed the original amount that they were obligated to spend. The government has a strong tendency to over spend on what they actually have in their bank accounts, because it helps balance the budget. When the government helps balance the budget by exceeding government spending, this in return aids the government in generating a budget deficit. Budget deficit and deficit spending are exactly the same, which is exceeding the amount that was previously put in place to spend.
Consequently, European governments decreased unemployment benefits (Paxton, 1975) and offer more employments to encourage its citizens to become employed again (Parker, 2008). Secondly, the decrease in exports became higher than the decrease in imports after the accident. Therefore, governments had to take action devaluating their currencies to boost exports and to control the economic stagnation (Clavin, 2000), as well as they imposed deflationary policies such as exchange controls, protective tariffs and quantitative limits on imports (Erchengreen & Irwin, 2009). Not only it was clear that Europe experienced economic nationalism after the depression but it was even more certain when Germany suffered from an indebtedness to the United States due to the incapability of European banks to repay all the loans they have borrowed from the American bondholders.
Made popular during the Reagan administration, supply-side economics involve tax cuts, which in theory increases the amount businesses and people make, putting more spending money into their pockets, spurring economic growth. Both economic policies do something good for the people in the country, igniting what is known as the Two-Santa theory. While the democrats lower unemployment the republicans give the nation a tax-break. Both have downfalls though, demand-side economics involves frivolous government spending that comes from other taxpayers and does not include long term employment but rather a lot of short standing jobs. On the other hand, supply-side economics involves large government deficits because the government loses so much revenue, and people do not always spend the extra money they make, so they do not end up creating an economic boom.
Another reason why the deficit increased is the mandatory spending. The mandatory spending has increased, which means benefit payouts for Social Security. Another reason is the economic stimulus package. Additionally, the recession reduced federal revenue and taxes which stimulated the growth of the deficit. Although the government has tried to recover, it is a slow process.
Working Disincentives The previously discussed working incentives which would occur with the introduction of a guaranteed minimum income, are challenged by the beliefs of Preston and Haywood. By taking into account the major increase in taxes, one can argue that the average and marginal tax rates will also increase. This will lead to the work disincentive, as recipients retain far less of any additional dollar that they
Keynesian economics is when the government spends more money during periods of high unemployment. This is exactly what FDR did to drive America towards the end of the Great Depression. The ultimate end of the Great Depression was World War Two, and during that war government spending greatly increased. Throughout the New Deal, government spending was increased. With this, unemployment started to go down.
One advantage of having debt is it limits the urge to spend. For example, I would less likely make unnecessary purchases such as buying shoes and clothes if I knew I still have a debt to pay. However, having a debt could also be a disadvantage because sometimes it could take a long time to pay back the bank. I feel that that having a large debt would take control of how I live. In other words, I feel that my life would be miserable because every day I would have to think about how I am going to pay back the bank.
If the numbers continue to grow at the same rate it is now, the different entitlement programs will consumer as much as 15 percent of the nation’s economic output (Chamberlain, 2007). Chamberlain asserts that this is double the current rate. An increase in the current rate presents a danger to the future output of the economy. Moreover, I believe that the government could work towards controlling the uncontrollable (Tax Policy Center, n.d.). Just because entitlement spending is said to be uncontrollable, it does not mean that this programs could not be reformed.
For example in 2008, the economic recession caused the U.S to lose dominance over the nation and allowed for Japan and Europe to gain more authority (Yates 10). The effects of the Great Depression caused a ripple effect in the progress of the United States economy. Moreover, when analyzing the United States financial history, results show that the 1980’s was a turning point in the U.S economy, which lead to the stock market crash in 2008. Theorist Thomas Piketty in his book Capital In The 21st Century, he advocated that the key reason for inequality rates increasing was due to tax cuts.
Like an investment, the government puts money into society, hoping to get a more substantial amount of money back. But with unemployment low the government is investing money into society and the investments are not paying off. The unemployed (7.8 million people) can’t or won’t pay and middle class doesn’t make an effective salary. If a significant amount of people are not working that means the government is missing out on vital income tax. And the middle class alone can’t fight off the $19.3 trillion dollars of debt.
Reagan’s economic plan was largely based on a “supply-side economic theory” in which large tax cuts would encourage people to work longer hours and promote investments. The four main principles of Reagan’s plan of action, was to reduce government spending; reduce federal income and capital gains taxes; reduce government regulation; and restrict the money supply to reduce inflation (American History). Obviously his plan required time to work; therefore, America’s economy suffered a
Governments often disagree on the adjustment of local, state, and national economic policies. Measures implemented by these governments in relation to the collection of revenue and public expenditure are referred to as fiscal policies. Fiscal policy is the use of government revenue collection, which is derived from income tax and expenditure, to impact the fluctuating economy. Some may opt to promote expansionary fiscal policy, while certain show more interest in contractionary fiscal policy. While there are many advantages to both, certain key factors set them apart from each other.