Economics 203 – Assignment 2 “The Federal Government should never run a deficit. There should be a law enacted to state this.” Federal Government deficit is the difference between how much a federal government takes in through taxes and how much it spends for a given year. When a government spends more money than it takes in through taxes for multiple years, it’s debt increases. I will be critically evaluating the topic statement above by considering both the pros and cons of government deficit, and finally conclude with a summation of the validity of the statement. When governments post a budget deficit for a year, many of its citizens become infuriated.
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.) In conclusion, should the federal budget always be balanced? To sum up all the points above, I would to say that the federal budget should always be balanced, based on the many advantages that have been discussed above.
(Ed. Allison McNeill, 2003) What was the government doing? It is the first question that comes into mind after analyzing the economic conditions and the effects of Great Depression. Many famous contemporary economists were claiming that the government should do nothing to encourage economic recovery. According to them capitalism would recover itself there was no need for government's intervention.
Definition: Fiscal policy is the government spending and taxation that influences the economy. Elected officials should coordinate with monetary policy to create healthy economic growth. They usually don't. Why? Fiscal policy reflects the priorities of individual lawmakers.
One side of the argument states that we need to decrease funding to make room for spending in other areas of the government (ex. healthcare). Barney Frank states, “If we fail to cut military spending, it will be impossible to fund domestic spending at necessary levels.” This is a major concern for people siding with this argument. The idea presented by this side is a “pay ourselves first before we worry about other countries” kind of mentality. Debaters on this side want to make our welfare systems and the development of our country a priority over the size of our military.
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.
Gap analysis is a simple way of describing the main policy implications of the Keynesian theory. The deflationary gap is the amount by which aggregate demand must be increased to push the equilibrium national income, through the multiplier, to the full employment national income. The government has a number of possible policy instruments which it can use for this purpose. Increase government spending will raise aggregate demand directly and, by increasing total injections, will have a multiplier effect on income. To achieve full employment, it is necessary to shift the AD line upwards by the full amount of the deflationary gap.
Government need to encourage spending by reducing interest rates or, failing that, to inject spending into the economy directly by deliberately running temporary budget deficits. (Wasting Away in Hooverville #2). Fight Fed policy that caused the money supply to shrink by 25
What Are the Pros and Cons of Military Spending? As the US economy tanked, the banks have been bailing out and the country losing its jobs, its military spending has continued to grow. For the past years, it is recorded to have increased more than 100%, which is very high compared to the height of Ronald Reagan’s presidency and the Cold War. The money allocated for the defense budget is used to purchase sophisticated weapons that often do not make it into production, but when they do, they are just too expensive to maintain. This means the US has been maintaining its spending a full 1% of its gross domestic product (GDP) just to maintain its arsenal.
The purpose of quantitative easing is to push up the economic growth by lowering the interest rate. The central banks has its unique function to create the money. (eco.com). By increasing the money supply, it will keep the value of dollar low. With a low interest rate, it permits banks to make more loans.