Question

1.

Based on the attached article that was written by Deirdre Shesgreen of the USA Today, dated April 9, 2018, respond to the following questions: a) Distinguish between debt and deficit. b) Discuss the relationship between deficits and the debt, i.e., how does one effect the other. c) According to the head of the Peter G. Peterson Foundation, “the debt would hit its highest level since World War II in 10 years, crowding out private investment and reducing the government's flexibility to respond to downturns.” Explain how debt can crowd out private investment and reduce the government’s flexibility to respond to downturns. d) Is interest on the debt mandatory spending as part of the federal budget? e) A balanced budget amendment is a constitutional rule requiring that a government cannot spend more than its income. It requires a balance between the projected receipts and expenditures of the government. Cite and briefly discuss the pros and cons of a balanced budget amendment. f) What is the Congressional Budget Office and what is their purpose? Federal Deficits Projected to Rise, Surpassing $1 trillion in 2020 The nation’s annual federal deficit will grow “rapidly” over the next four years and will exceed $1 trillion by 2020, the nonpartisan Congressional Budget Office said Monday. The deficit will hit $804 billion this year, a 21% increase over 2017, and will continue to grow through 2022 — hitting historically high levels and adding to the national debt. The changes are a result of lower revenues, stemming from the Republican-crafted tax cut law enacted in December, and increased spending from the bipartisan budget agreement Congress passed earlier this year. The budget deficit will be 4.2% of the nation’s gross domestic product in 2018, and will grow to 5.1% in 2022, the CBO estimates.  “The only time since World War II when the average deficit has been so large over so many years was after the 2007–2009 recession,” the budget office noted.    Democrats seized on the report to blast the GOP tax law and portray Republicans as fiscally irresponsible. The tax law is projected to add at least $1.5 trillion to the national debt over the next debate. “The CBO’s report exposes the staggering costs of the GOP tax scam and Republicans’ contempt for fiscal responsibility,” House Minority Leader Nancy Pelosi, D-Calif, said in a statement Monday. “In their craven haste to give corporations and the wealthiest 1% massive tax breaks, Republicans saddled our children and grandchildren with trillions of dollars of debt.” Congress also passed a $1.3 trillion spending bill last month — a bipartisan agreement that increased defense and domestic spending alike. Republicans have faced a backlash from conservative activists over the measure, which Trump reluctantly signed into law. The head of the Peter G. Peterson Foundation, which advocates for more balanced budgeting, said the debt would hit its highest level since World War II in 10 years, crowding out private investment and reducing the government's flexibility to respond to downturns. House Minority Leader Nancy Pelosi, D-Calif., holds a news conference on Capitol Hill in Washington on March 15, 2018. (Photo: J. Scott Applewhite, AP) “During a time of low unemployment and economic expansion, we should be taking reasonable steps to put our debt on a sustainable path – but instead we are piling up trillions of bills that will harm the next generation’s economic prospects and prosperity,” said Foundation CEO Michael A. Peterson. To assuage conservative anger over the spending bill, House Republicans plan to hold a vote this week on a balanced budget amendment to the Constitution. But that vote is symbolic—it will almost certainly fail to garner the supermajorities needed to send the amendment out to the states for ratification. Democrats say that vote is a political move and demonstrates that Republicans want to slash cherished domestic programs. “From day one, the Republican agenda has always been to balloon the deficit in order to dole out massive tax breaks to the largest corporations and wealthiest Americans, and then use the deficit as an excuse to cut Social Security and Medicare,” said Senate Democratic Leader Charles Schumer, D-N.Y.

Answer 1

a). The deficit is the difference between the government revenue and the government revenue, the government mainly collects their revenue from their taxation and other kinds of income. And the government spends in for social security, public goods, defence etc... If the spending of the is greater than the revenue of the government, then we call it a defict. On the other hand if the government spending is less than the government that is surplus. There is balance between the revenue and the surplus, but in the real world it seems to be unreal.

The debt is the total amount of money that a government owes. It consists of the past deficits minus surplus and the debt is caused by the mismatch between the spending and the revenue of the government.

b). The government borrows the money for covering the budget defict so the more the borrowing the less the budget deficit. So there exists a negative relationship between these two.

c). The increased borrowing of the government may crowd out the private investment in the country, when the government spends in the econiomy that is financed through the borrowing will increase the interest rates in the economy and this will reduce the private investment in the economy. At high level of interest rate no one would wanted to borrow and invest in the business.

The debt also reduce the flexibility of the government, when unanticipated events occur in the economy it would be difficult for the government to respond to the situations becuase they lacks funds.

d). YES, like other mandatory spending as such the welfare spending, social security the interest payments is a mandatory spending.

e).

Aruguments against the balanced budget amendent.

• It put tax burden on the future generations
• will crowdout the private investment.
• Inflation
• Future economy will be small and inefficient due to the increased spending.
• large debts make volatality in the interest rate payments

Arguments for the balanced budget amendment

• It will help the economy to fight the recessions
• results in social security programs such as Medicare and Medicaid
• boost aggregate demand the gross domestic product.

f). It is a legislative branch of the U.S goverment and the purpose of this agency is to provide budget and economic information to the government.