Question

Find the most recent federal deficit as a percentage of GDP of the United States. Suppose that the federal budget deficit was eliminated and there was no change in private saving. What would be the effect on the long run capital stock per worker? What would be the effect on long run output per worker?

Answer 1

Federal Government Budget is considered as the predominant part of its administration which governs the revenue and the expenditure of the US nation. The Budget has the objective of ensuring the optimum allocation for the public welfare choices in the area of Health, Education, Infrastructure, Defense and Corporate affairs, etc. Even though US nation allocates huge funds in order to spend on social welfare goals, it faces the critical situation of budget deficit with the major drop in the GDP in the time of recession period.

The effect on the Long-run capital stock per worker will be reduced to the considerable effect. The effect will be in the long-run with the action of bridging the gap between the employment opportunities and the rate of the quantity of the production units. As it was mentioned earlier that the constant status of Private Savings is reflected in the action of US federal government by disbanding the deficit budget. This will turn displayed the clear picture of quantity of production of goods and services increased by providing more incentives and creating more corporate based infrastructure facilities to the entrepreneurs. So it provided optimum employment offers to the skilled employees. So we can state the effects of the long-run capital stock per worker.   

This also gives the answer for the effect on long-run output per workers. More quantity of goods and services are produced by equalizing with the government spending on nation building activities together with spending for the corporate gain activities. Corporate Profits are ensured here only when the government provides subsidies to the new entrepreneurs when they produce the goods by covering the marginal cost and also increasing the output corresponding to the every worker employed to produce every unit of production of goods and services. So it also produce in the long-run period.