...Week 3 Assignment Teketreun Prince ECO 203 Principles of Macroeconomics Instructor Nathan Rondeau March 24, 2014 The efforts to reduce the deficit and debt in the United States budget has two different views. There is some politicians who think more spending is the best short term solution. The other side believe in a smaller government role will benefit the deficit and debt through a long term solution. In 1985, the deficit was over 200 billion and there was a plan put in place to reduce it. Aftermany years of talk about a balanced budget amendment to the Constitution, which would require a balanced budget on an annual basis,Congress passed the Gramm–Rudman–Hollings Act in 1985. (Amacher, R., Pate, J., 2012) This act was a strategic plan to reduce the deficit to zero in a certain time period. This act is a good guideline to start from, but it doesn’t project things like war or aids that usually sends the budget in another direction. The projection to the economy direction is important as well, in order to reduce spending and slowly repay the deficit. There is one group believes a cut in federal spending and small tax increase will reduce the deficit and debt quickly. This is one reason that deficit in the earlier years where reduce in a good timely manner with a small affect. The other group of people would like to increase taxes and spend more, in order to pay the debt off. The Clinton era was the last to have surplus in the federal government with a...
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...| The Effects of Running a Surplus or Deficit Budget | ECO 372 | The current state of America’s fiscal policy is of major concern for the majority of the populace with the constantly increase of health care, gas, home interest rates, and staggering unemployment number, some are wondering if this nation will survive. Even many fiscal experts are forecasting that The United States is on road to fiscal disaster which seems to confirm the fears of the nation. Compounding the problems is an elderly populace and increasing deficit problem, a growing segment of government spending apportioned to interest expenditures and entitlements for the upcoming years resulting in plunging government's prolific investments and pushing out private shares. The deliberation of this paper is centered on how and why the U.S.’s deficit, surplus, and debt influences on the taxpayers, impending social security and Medicare users, the unemployed, University of Phoenix students, America’s financial reputation on a global scale, national (export) automotive manufacturer, Import of Italian clothing company, and gross domestic product (GDP). The near term objectives of the paper to convey information as complete glaze of US fiscal policy and how the current fiscal policy influences the nation. American taxpayers play a major role in the economy; this is why there is so much commotion about the millions of immigrants who do not pay taxes. The role of a taxpayer and the role of the economy go hand...
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...Company The deficit, surplus, and debt of the United States affects an Italian Clothing Company because; when it comes down to the United States deficit, it would cause the market to be over-run by foreign products. The rate in which a country is exporting is not at the level with it’s’ exports, a surplus would lead to more importation by the Italian Clothing Company and debt, it would cause the imports to be reduced (because many business partner would be hesitant to do business with the importer. Gross Domestic Product (GDP) Effects on Italian Clothing Budget Deficit Expansionary polices, such as those incorporated into an economy during a recession, have positive effects for imports. Increasing the money supply will increase an American consumer’s option to purchase more foreign goods such as Italian clothing (Colander, 2010). Budget Surplus Contractionary policies, such as those that may occur in an economy operating at its productive capacity will have a negative effect on the purchase or Italian clothing. Levels of trade with foreign countries will decrease from the peak productive period. Debt Initiatives to pay-down the United States debt could have a negative effect on the economy, thus reducing the demand for Italian clothing. However, if efforts to lower the debt are successful there will be less tax burden on consumers in the future leading to more opportunities for foreign trade. An Italian Clothing Company (Importing) When the United States has a deficit...
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...Depending on whether a country is running a deficit, a surplus, or a debt, businesses and individuals are affected differently. “The most important budget in the world is that of the United States government. The U.S. budget impacts not only the United States of America but foreign investment, trade, and the economies of nations throughout the world.” (Boothe, 2003) The objective of this paper is to provide examples of how the United State’s deficits, surpluses, and debt affect individuals and business both domestically and internationally. Deficits, Surpluses and Debt; an Overview Summary measures of a budget are denoted by deficits and surpluses. Whereas a deficit is a shortfall of revenues under payments, a surplus is an excess of revenues over payments. Debt is accumulated deficits less accumulated surpluses (Colander, 2010). These summary measures indicate the health of an economy. This indicator helps both domestic and foreign companies determine if it is beneficial to invest in United States assets. Heading into the year 2000, the United States was running a surplus. This quickly changed as the government invested in The War on Terrorism, consumers changed spending habits, unemployment rose, and growth decreased. To increase the money supply, government implemented monetary policy and to get the economy moving again, implemented fiscal policies. These policies have wiped out the surpluses and created large deficits. Effects on Domestic Automotive Manufacturers ...
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...Budget Deficit For many decades, there has been a concern for the deficit within the United States. Many politicians, authors, newscasters, and citizens have expressed their distress in order to resolve or control the issue. Keynesian economic theory states that running a budget deficit is okay, as long as the deficit is not exorbitantly large and is not carried for a long period of time. Even though many experts agree with this notion, having a deficit at all is important to the present and future economic stability of a country. For the most part, the uncontrolled increases in spending and reckless tax cuts in the past have damaged the federal budget, which the White House and Congress have allowed to occur. President Bush has put a fair amount of influence towards the federal deficit in his campaigns, State of the Union Addresses, and policies as President. According to the article titled U.S. Budget Deficit Shrinks, at the end of the fiscal year for 2006, Bush stated that he had officially cut the budget deficit in half to $247.7 billion, as promised, from the projected deficit of $521 billion. The President credited his tax cuts and business tax incentives for the better-than-expected showing in revenues, which drove the deficit to the lowest level in four years. Obviously, there are many that argue against this rationale to the fact that there was more at hand than the President’s policies. The Democrats belittled the sharp reduction in the deficit for the...
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...about deficits, surpluses, and debt in relation to the macroeconomic health of the United States. The group as a was very comfortable with the discussion of the week while learning new information about the health of the economy. The following is a summary of what the team learned in regard to deficits, surpluses, debt, and the health of the economy. Budget Deficits Budget deficits occur when government expenditures exceed the amount of revenue coming into the economy through income and taxes. A deficit is a summary of how the economy measures the state of using and accounting procedures. Since World War II, the United States government has run a large amount of deficits, as opposed to surpluses. A deficit can be good or bad, depending on the specific condition of the economy. When the government runs a budget deficit, the goal is to improve the economy. When the economy is not progressing at a rate the country expects, the government will spend money to help stimulate economic growth. If the government spends money to improve revenue for the long-term, both the government and society benefit by the added debt. A budget deficit can help businesses create more jobs to limit the amount of unemployment and improve consumer income. The debts accumulated may be the result of spending on worthwhile projects like road repair or important services like education. The government is also spending to establish programs for the longevity of the nation. On the other hand, a budget deficit...
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...calculate how much government purchases, taxes, or transfers should be changed. 3. Explain why an equal increase (decrease) in government purchases and net taxes (taxes minus transfers) has an expansionary (contractionary) effect. 4. What is the balanced budget multiplier? 5. Explain why discretionary fiscal policy has not been very effective in reducing recessions in the United States. 6. What are the “time lags”? 7. What is meant by "automatic stabilization"? What are the main automatic stabilizers? 8. What is meant by "official budget deficit"? by "structural deficit"? Why is the structural budget deficit a better measure of the intent of fiscal policy? 9. What does it mean that "fiscal policy is expansionary (or contractionary)"? How does one determine whether fiscal policy is expansionary or contractionary? 10. In what ways might budget deficits be bad for an economy? In what ways might they be good for an economy? 11. What is meant by “crowding-out”? 12. Explain the relation between the budget deficits and the trade deficits. 13. What is meant by the "national debt"? What is the difference between "budget deficit" and "national debt"? What is the difference between "gross national debt" and "net national debt"? 14. What is the difference between a Treasury bill, a Treasury note, and a...
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... Reflection Summary A budget deficit occurs when government expenditures exceed the amount of revenue coming into the economy through income and taxes. Since World War II, the United States government has run a large deficit, instead of a surplus. Depending on the particular condition of the economy, a deficit can be right or wrong. The goal is to improve the economy when the government runs a budget deficit. The government will spend money to help stimulate economic growth when the economy is not progressing at a rate the country expects. Both the government and society benefits from the added debt when the government spends money to improve revenue for the long-term. A budget deficit can help businesses create more jobs to limit the amount of unemployment and enhance consumer income. The debts accumulated may be the result of spending on worthwhile projects like road repair or necessary services like education. The government is also spending to establish programs for the longevity of the nation. A budget deficit can have an adverse effect on the economy. A budget deficit can result in increased debt. As the debt increases, the government increases taxes. When taxes are higher than business owners can afford, the result is an increase in unemployment. A budget deficit can also lead to an increase in printed money, which decreases the dollar value and increases inflation. Budget surplus is the opposite of the budget deficit. A budget surplus occurs when government...
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...Week five Fiscal Policy Paper * Depending on the time, the economy can have many financial stages. There are times when the economy is facing a budget deficit, which means the tax revenues in the government are lower than the government expenditures. The economy can also experience a surplus and high debt, which can also drain an economy. The state of our government can affect people from taxpayers, to the elderly who are collecting social security, to children needing medical and governmental benefits for their well-being. The government debt situation can be either an advantage to the population by lowering taxes, or a disadvantage by making taxes higher. * To know how taxpayers, future Social Security and Medicare users, and unemployed individuals are affected by the U S.’s deficit, surplus, and debt. It is important to understand the definitions of deficit, surplus and debt. Surplus occurs when there is more supply than demand, as in extra resources. Deficits occur when a government's expenditures exceed the revenue that it generates. Debt is an amount owed to another person or government in economics. * Taxpayers can benefit from a budget surplus. A surplus can create a reduction in the tax rate which leads to a higher consumer’s savings rate. The less taxes that consumers have to pay allows spending or savings in other areas. An increase in national savings (reduction in tax rate) also creates additional money that can be available for banks to...
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...Fiscal Policy ECO/372 June 1, 2015 Alan Beideck Fiscal Policy The United States deficit, surplus, and debt influences the economy in a number of ways, and it creates an impact on taxpayers, social security and Medicare users, unemployed workers, and students. These issues also affect the countries financial reputation, exports, imports and the Gross Domestic Product (GDP). The U.S. economy is experiencing a budget deficit and outstanding debt, and the outlook is not good for taxpayers. If these two items do not get under control, future generations will be left to pick up the pieces and will have to try to find a way to maintain and control the budget. Taxpayers Taxpayers are the people that pay and contribute to state revenue. Government deficits affect taxpayers by increasing taxes and interest. "Inflation also affects the deficits by affecting the size of social security payments, federal pension payments, and interest on the federal debt. The deficit and surplus are sensitive to the business cycle" (Deficits, Surpluses, And Debt, 2015). "If the government use surplus it would "give tax cuts to taxpayers, increase income transfers, pay down national debt and spend it on goods and services" (Deficits, Surpluses, And Debt, 2015). Future Social Security and Medicare users The Social Security program began in 1935 and benefits have always been paid on time, even with modified laws over the years. Benefits are expected to continue to be paid on time through...
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...effects of the United States' Deficit, Surplus, and Debt The United States goes through a large amount of changes every day and there are certain things that affect all Americans. When the United States goes through deficit at times, surplus, and debit and when these things happen everything is affected. Students, business owners, and even car manufacturers are affected. These three types of budget issues happen to the United States and when one happens they have positive effects and the negative effects. Each person and business that is affected by this has to make sure that they know how to adjust to the changes so that they can better their finances. Taxpayers The United States deficit, surplus, or debt affects taxpayers because the government adjusts tax rates as needed to help the economy. When the United States has a budget deficit and a large debt, they proposition to raise taxes on wealthy Americans to help lower the deficit. The government is not the only one that feels the economy go into deficit. If the United States economy goes into a surplus, the government has spent less than the income they have received. This allows them to decrease taxes expected from taxpayers that gives Americans more money to spend and put back into the economy. Future Social Security and Medicare Users As the United States continues to stay in a budget deficit, the government will decrease the amount paid to support the Social Security and Medicare programs. For future users, this will...
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... Jingze Yuan The government budget deficit is the difference between government revenue (mostly taxes) and government spending; the current account deficit is the difference between exports and imports (there are some adjustments for items such as funds sent abroad). Both deficits occur when someone is spending more than they earn; during the last 25 years the US government has tended to spend more than it collects in taxes and US residents have tended to spend more on imports than they export. A nation’s current account deficit reflects excess domestic spending. Equivalently, a current account deficit equals the excess of domestic investment over domestic savings. Regarding the Twin Deficit approach, Bernheim argues that if world capital markets are integrated and Ricardian equivalence does not hold, an increase in the budget deficit will almost certainly contribute to the current account deficit. A regression of the current account on the budget deficit (both scaled with GDP), while controlling for business cycle effects using growth and lagged growth gives a coefficient of 0.3 on the budget deficit in the case of the U.S. and similar figures for Canada, U.K. and Germany. Furthermore, tax smoothing implies a one-to-one relationship between the current account and the fiscal deficit. The underlying mechanism is that a constant tax rate induces the budget deficit to move one-to-one with public spending and therefore with the current...
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...Fiscal Policy Fiscal Policy The United States’ deficit, surplus, and debt have had and are currently continuing to have a profound effect on the economy of this country. Although the federal government could play more of a role in boosting exports through tax reform and training assistance, some industries are staging a comeback on their own without help from Washington, because of improving marketplace trends. Taxpayers and Unemployed Individuals The United States' deficit, surplus, and debt have a very far-reaching effect on taxpayers and unemployed individuals. The immediate effect on taxpayers is as the deficit goes up and debt does as well the taxpayers are going to absorb the brunt of repayment. This will also indicate that as the deficit climbs and debt becomes larger that the dollar will become less valuable. The dollar losing value means that employers as well as consumers will have to be more careful with their money. The trade surplus has very little effect on the consumer because without a tariff in place on the outgoing goods it does not offer much if any of a return to the taxpayers. While the taxpayer and employers are watching every last dollar that makes it harder for the unemployed individual to get a job in his field. At this stage high quality jobs are harder to come by because employers have to make cuts to maintain pre-recession profits. Therefore, unemployed workers are forced to stay on unemployment or try for jobs with lower skill qualifications...
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...The United States federal deficit is continually contracting or expanding depending on how expenses paid match up to incoming revenues. A government policy which implements either expansionary or contractionary policies greatly influences the size of the deficit as well as any surpluses gained. Because deficits and surpluses are such an integral part of our economy, the way they affect almost every sector of our lives can be far reaching and long lasting. In this paper we will evaluate some general side effects of having either a surplus or a deficit and how they affect specific areas of our lives. Taxpayers If the economy is in a recession, taxpayers have a budget with minimal amount of money to spend on goods or services. The tax rates change because of the number of employed individuals working in a year. If the economy is going through an inflation period, the government has options for those extra funds. One option, if the government has run budget deficits in the past, is to use surplus funds to retire the debt accumulated from those deficits, as Mankiw discusses in his book (Hall, 2012.) Another option is for some of the money to be given back to the taxpayers for boosting the economy with purchases of merchandise for households. A third option for the government would be to direct the surplus funds toward other spending, such as improved infrastructure, new domestic programs or additional defense spending (Hall, 2012.) Future Social Security and Medicare Users Taxpayer...
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...Buffett is betting that American trade deficit will not be restored and the country’s practice of borrowing from abroad to pay for the current goods and services will not stop. The USA borrows from abroad to finance its trade deficit, on top of that the USA government spends more money than it takes from taxes. The budget deficit increases the gap between country’s national savings and national income and and also widens the deficit in the current account by necessitating the country to borrow more money from other foreign countries. This widened current deficit puts strain on the USA currency in the financial markets. If Americans are going to buy inexpensive imported goods and the USA government has a budget shortage, I think Warren Buffett is making a fantastic move by betting against the dollar. Between 2002 and 2007 the dollar has fallen by 40 percent. 2. Why has the United States developed such large current account deficits? I and a lot of people believe the United States has developed such a large current account deficit is the trade deficit. The USA is importing more goods and services more than it exports so it has held trade deficit since the late 1960s and this trade deficit has been mushrooming at an unbelievable rate since 1997. The increasing oil prices in the last few years has helped increased the current account deficit too. Another reason for the current account deficit could be attributed to the budget deficit. In almost every year the government cuts...
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