Question

In: Economics

National Debt: During the Great Recession of 2008, there was an intentional increase in the federal...

National Debt:

During the Great Recession of 2008, there was an intentional increase in the federal government budget deficit (that concurrently led to an increase in debt). Now that we have pulled out of the Recession, many individuals feel it is time to bring the federal government's budget back into some sort of balance. Advocates of bringing the budget back into balance believe deficits impose a burden on future generations and critics of balancing the budget feel that the deficit is only one piece of fiscal policy.

From one article: The federal government should continue to run annual deficits to finance long-term investments such as infrastructure while collecting sufficient tax revenue to pay for the government's annual operations each year.

The other one says: How borrowing can be an expensive way to raise money and that the United States must constantly repay its debts.

  • What do you think about that? do you feel fiscal policymakers should make balancing the government's budget a high priority? Why or why not?
  • How will reducing the government budget deficit make future generations better off? How could reducing the government budget deficit harm future generations?

Solutions

Expert Solution

Solution:

The policy makers should work to balance government budget deficit as it create burden on the economy, a part of GDP allocated to pay interest on debt which has no productivity in reality infact that amount can be put in other public expenditures. even balancing government budget deficit batter off and even harm the generation in manyways but still I feel govenment has to balance the budget deficit.

There are some effect of balancing budget deficit on future generation:

(a) The govenment has to take serious steps to cut deficit in future which reduce the governement spedings on public goods.

(b) The government has to increase the tax rates to pay off debts which reduce the purchasing power of the public that create demand pull inflation and also hampers the GDP of the nation.

(c) Crowding out effect is also negative for the nation as government has to sell its bond to pay off deficit after which inverstor left with less amount to invest in private sector, that further hampers the aggregate demand of the economy.

(d) In severe condition govenrment has to print more currency to clear its debt which create inflation in the economy.

(e) clearing debt will allow future generation to create deficit in the need of that life durig reccession countries generally has to create budget deficit.

(f) After clearing off the debt the govenement will have the funds that previously used to pay intereset debt, that now can be used to public goods and welfare.


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