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Budget Deficit Analysis

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The federal government 's budget shows the relationship between its expenditures and its tax revenue. During a recession, the federal budget tends to be more in a deficit, and the opposite is true during goods economic times, as the deficit tends to be smaller, or moves to a surplus.To say that the federal government should never run a deficit, and that a law should be enacted to state this is ludicrous. What makes the statement ludicrous is the fact that during a recession, not running a budget deficit is impossible, and that the government doesn 't have to think about, or take any deliberate action to enter a deficit during a mild recession. Automatic budget deficits can arguably benefit the economy more than an automatic budget surplus, …show more content…

Consider the economy enters a recession, thus the government automatically moves into a budget deficit. In order to balance this deficit, the government would have to raise taxes or cut spending, but both of these actions would reduce aggregate demand, making the recession worse. Now assume GDP increases above its potential level, the budget is automatically moved into surplus. To eliminate this surplus, the government would have to cut taxes or increase spending. These actions would increase aggregate demand, thereby pushing GDP even further beyond potential GDP and increase the risk of higher inflation. To balance the budget every year, the government might have to take actions that would destabilize, or even destroy the …show more content…

Borrowing to pay current expenses is a bad idea, but isn 't necessarily a bad policy when the expenses are for long lived capital goods. By similar reasoning, when the government contributes to the building of a new highway, bridge, or subway, it may want to borrow funds.The alternative is to pay for these long lived capital goods out of the tax revenues received in the year the goods were purchased. But this means that the taxpayers in that year have to bear the whole burden of paying for the projects, even though taxpayers for many years in the future will enjoy the

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The City will need to be effectively monitoring its budget. The negative consequence of this budget strategy that the City have no surplus or reserve to carry

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In the article “Stronger Economy Cited as U.S. Reports Lowest Budget Deficit of Obama’s Tenure” by Julie Hirschfeld Davis she explains how obama’s administration announced that the Federal Budget Deficit fell to the lowest point ever since obama took over office. Although the deficit being at its lowest point is bad news they also said that the economy is strengthening which is good news. The Treasury Department and the Office of Management and Budget reported that In 2015 the FBD was $439 billion that is $44 billion less than last year. “Under the president’s leadership, the deficit has been cut by roughly three­quarters as a share of the economy since 2009 the fastest sustained deficit reduction since just after World War II,” Treasury Secretary

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The effect of the recession on HBCUs As we know a recession is defined as a temporary decline in income due to reduced trade and production activity. Everything in society is ran by a sort of system. For example, in order for a company to thrive it must have two things, workers and production. If there are not any workers, than there is little to no production unless the company is ran by machines. If there is not any production than the chances of workers being laid off increase based on how many people are needed for certain jobs through out the company.

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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.)

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This debt is continually growing due to irresponsible policies and spending at the Federal level. As evident in the growing debt due to deficits each fiscal year, Federal lawmakers advocate to reduce spending and attach the Federal debt, but neither political party that is in power has enacted

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This means the US has been maintaining its spending a full 1% of its gross domestic product (GDP) just to maintain its arsenal. However, military spending has become a hot topic during debates in many years now, where some people suggest of cutting it, while others are okay with increasing it. To come up with a good decision on our end for this matter, let us take a look at its pros and cons. List of Pros of Military Spending Supporters of military spending see many advantages coming from it.

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The surplus that was there should have been spent on paying off the debt. In current politics it seems impossible on how the government would be able to create surplus. If government officials keep having polarized behaviors in meeting, which every time seems to frustrating get worse the government has no hope to fix the economy because a hard hit like this would hurt the U.S. economy which would lead to the end of presidential democracy and the start of radical government. One can actually see these events happening with the presidential candidates. Donald Trump is a great example, his radical and extremist ideas are getting popular throughout the country.

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Many would argue that by relieving debt from students, it would act as an economic stimulus. Students unburdened by their financial load are likely to pour their money right back into the economy by purchasing goods or services. As Webly mentions, "college graduates are the type of people society needs to do things like start businesses, buy homes and cars, invent things, and make babies" (130). Their extra cash would flow back into the economy increasing revenue, creating new jobs and businesses that would lead to a growing financial system. But this solution causes disillusionment, a one-time payout from the government will not solve the economic crisis like it promises.

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With regard to the restoration of balance, balance should only do what is necessary to solve a problem, never more,

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To understand the ups and downs of the economy it is imperative to understand the connotation of inflation, its harms to the economy, and deflation in the Business Cycle. Inflation is defined as a prolonged increase in the general level of prices, and this has a direct impact on the purchasing power and the economy’s health. It is a result of an economic boom or peak (stimulated by various factors) when aggregate demand rises faster than supply can increase. In Econland, the monetary policy that increased money and credit supplying led to inflation.

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Keynesian Theory The birth of “The general theory of employment, interest and money” in 1936 by Keynes has provided the basis for analyzing modern macroeconomic policies, and is usually referred to as the Keynesianism. Keynes argued that if economy is in recession period, Government could maximize economy (full production and total aggregate demand) through increase in government spending or tax cut to increase investment and consumption. Therefore, government influences through fiscal policies will drive up investment and demand to attain full productions. Keynesianism has been used aggregate demand (AD) and aggregate supply (AS) framework to analyze the relationship between output, inflation and employment.

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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)

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Classical economics emphasises the fact free markets lead to an efficient outcome and are self-regulating. In macroeconomics, classical economics assumes the long run aggregate supply curve is inelastic; therefore any deviation from full employment will only be temporary. The Classical model stresses the importance of limiting government intervention and striving to keep markets free of potential barriers to their efficient operation. Keynesians argue that the economy can be below full capacity for a considerable time due to imperfect markets. Keynesians place a greater role for expansionary fiscal policy (government intervention) to overcome recession.

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Decline in demand will naturally reduce the flow of resources to service and production of goods, which may damage employment and increase inflation. Natural changes in the prices, wages and interest rates cannot solve the problems in the short run, then the harms which is occurred in the short run can give a rise to bigger devastation in the long run. Keynes clarified his pessimism for the future with these sentence ‘’In the long run, we are all dead’’ According to Keynes, the reasons of recession and unemployment are occasionally the measures that people take to avoid them. If households want to save more than firms ' investment desires, output and employment levels in the economy will decrease.

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1055 Words | 5 Pages

CHAPTER 2 LITERATURE REVIEW INFLATION (InvestorWords, 2015) stated that inflation is the increase in the general price level of goods and services in economy, normally caused by excess supply of money. Inflation usually measured by the Consumer Price Index (CPI). When the cost of producing goods and services goes up, the purchasing power of dollar will decrease. A customer will not be able to purchase the same goods and services as he/she previously could.

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