Question

For this discussion activity, you will get insight into the federal budgeting process and how key allocation decisions are made. As part of that effort you will work through the National Budget Simulation in an effort to achieve a budget deficit of $1400B dollars.

Scenario: The President of the United States has been elected on the promise of fiscal responsibility as a key mandate of the electorate. By law he cannot reduce the net interest paid on the debt. The President's budget is projected to leave the country with a $1400B deficit.

The United States is subject to global security concerns tied to recent terrorist attacks both domestically and internationally. At the same time, a lingering recession and financial markets rescue package reduces the government's tax revenues and forces the government to increase its spending on unemployment benefits, welfare, housing assistance, food stamps, and other need-based programs. Because of the increased spending and reduced revenues, the nation falls into a projected deficit of nearly $X in 2020 (This is the first piece of the information you need to find).

The President is committed to keeping his campaign promises to avoid future crisis over the US's financial standing. He must raise taxes, cut spending, or a combination of both to stay within his new guideline of a deficit below $1400B. The President turns to you, his trusted economic advisor, for help. (Note: While some events in this scenario reflect actual events, others are hypothetical for the purposes of this exercise. Budget figures in the simulation are actual White House figures of 2012, including spending and revenues of 2012.)

Given the information you watch and read in the preceding Week 7 activities, use that background to answer the above questions for discussion. Since the simulation is using 2012 numbers, start off with actual numbers just to inject a sense of reality into this discussion. Research this information from a reliable source and begin your analysis with what you found. Finally, analyze the effect your choices will have on the economy.

Answer 1

ANSWER: Maintaining the fiscal discipline and at the same time turning away the recession and also financial slowdown becomes catch22 situation wherein either of them is possible at a time.

Also the best way to inject the booster to the economy and alleviating slowdown and recessionary fears is by introducing the structural reforms and also increasing minimum wages and relaxing. Sectoral laws to ease the harmonisation and consolidation and also boosts the wage outgo which all in turn helps to boost the economic activity. However this requires the changes to he constitution and also support from the opposition parties. This should be combined with an expensive monetary policy that is backed up by the US fed which makes them to cut down the interest rates and buy the government securities and also cut down the CRR and SLR requirements to infuse the liquidity and cash flow into system.

This also helps to maintain budget deficits and same time navigate through the financial crisis. The positive repurcussions here are stability in inflation from deflated economy, higher GDP growth and also higher exports as the dollar gets depreciated and finally mergers and also acquisition and ease is doing business making the economy learner.

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