Question

7. Currently the U.S. national debt is over $20 Trillion. Many people feel the high level of the national debt is a very bad thing and it should be paid off.

a. Advantages of paying off the national debt.

i. Explain what would be involved in paying off the national debt.

ii. List and explain in detail, 3 advantages of paying off the national debt.

b. Disadvantages of paying off the national debt?

i. List and explain in detail, 3 disadvantages of paying off the national debt.

c. List and explain 3 approaches to getting the money to eliminate the national debt. Include the impacts each approach would have on the U.S. economy.

d. State which approach you would use to get the money. Why did you select the approach that you selected and not the alternatives?

e. Thoroughly and completely explain how your approach would work to eliminate the national debt,and explain the impact your solution would have on at least 5,key economic variables?

i. Implement your approach and use the what - happens - next approach to capture the detail of how your solution might work.

Answer 1

National debt is the total amount of money which a country's government has borrowed.

a. Advantages of paying off the national debt.:

1.. It improves countries financial credit ratings.

2. It can borrow more when needed as it proves its payback capacity

3. It will help in bringing macroeconomic stability as interest payments will be reduced and non creative liabilities will be reduced.

i. Explain what would be involved in paying off the national debt.: In paying off national debt purchase of national securities, repayment of loans taken from abroad and repayment to govt. companies is involved.

ii. List and explain in detail, 3 advantages of paying off the national debt.- Refer above.

b. Disadvantages of paying off the national debt?

i. List and explain in detail, 3 disadvantages of paying off the national debt.

1. As govt.has less money fixed income people like pensioners will suffer

2.Interest rates will fluctuate due to demand supply mismatch of money.

3. It will lead to govt. having less money for welfare schemes and poor people will suffer.

c. List and explain 3 approaches to getting the money to eliminate the national debt. Include the impacts each approach would have on the U.S. economy.

1. Increase taxes:This will discourage investors and may create deflationary pressures.

2. Empower central bank to give more dividend: Central bank may be left with less money during emergency situation.

3. Reduce expenses: Infrastructure, pensioners and all welfare schemes will suffer.

d. State which approach you would use to get the money. Why did you select the approach that you selected and not the alternatives?

I will adopt a measure to empower an economy above a certain limit of economic growth by empowering institutions and once that is achieved I will have holistic approach and will raise taxes, reduce spendings and will also ensure that state run enterprise give more returns.