Question

According to Article , “U.S. Debt Is Set to Exceed Size of the Economy Next Year, a First Since World War II,” what happened to the government spending from April to June of 2020? What happened to the national saving as a result? Assume that saving depends on the real interest rate, plot the effect of this fiscal policy on the real interest rate and the amount of investment in the market for loanable funds.

Answer 1

The U.S. national debt now exceeds the size of America’s total gross domestic product and the milestone may have been met as early as June. The US National Debt Has Exceeded The Total Value Of The GDP

America’s federal debt stands at around $26.6 trillion — an approximate $7 trillion increase since 2016 (fiscal data from the Treasury Department). Total U.S. GDP was just over $19.4 trillion at the end of June (the U.S. Bureau of Economic Analysis).\

• Financial pitfalls in the last few months can be blamed on the coronavirus pandemic.

• GDP decreased 3.4% in the first quarter of 2020 and is projected to fall another 34.3% in the second quarter

Lifts Government Debt To WWII Levels

• Advanced economies no longer benefit from rapid economic and population growth of postwar period.

• countries world-wide boost spending to battle the new coronavirus, government debt has soared to levels not seen since World War II.

• debt rose to 128% of global gross domestic product as of July, according to the International Monetary Fund. In 1946, it came to 124%.

• After World War II, economies brought down debt quickly, in large part to rapid economic growth. The ratio of debt to GDP fell by more than half, to less than 50%, by 1959. It is likely to be harder this time, for reasons involving demographics, technology and slower growth.

• In the era after the war, birthrates boomed, leading to gains in household formation and growing workforces. Circumstances were ripe to reap the benefits of electrification, suburbanization and improved medicine.

• the late 1950s, economies soared. Growth averaged around 5% a year in France and Canada, almost 6% in Italy and more than 8% in Germany and Japan. The U.S. economy grew almost 4% a year.

U.S. Debt Is Set to Exceed Size of the Economy Next Year, a First Since World War II

• Coronavirus spending, shrinking GDP and tax-revenue decline push government toward milestone.

• U.S. debt has reached its highest level compared to the size of the economy since World War II and is projected to exceed it next year, the result of a giant fiscal response to the coronavirus pandemic.

• U.S. passed the 100% debt-to-GDP mark, measured on a quarterly basis, in the April to June quarter, when government spending surged to combat the new coronavirus and tax revenue plunged. But this would be the first time in more than 70 years for it to do so for the federal government’s full fiscal year.

• Federal revenue fell 10% from April through July, compared with a year earlier, as fears of the virus and widespread business shutdowns brought economic activity to a standstill, and firms laid off millions of workers.

• the end of June, total debt had swelled to $20.5 trillion from $17.7 trillion at the end of March, a 16% increase over just three months, according to Treasury Department data.

• After World War II, federal debt levels remained relatively stable for years and a booming 1950s economy helped cut the debt-to-GDP ratio in half, to 54%, by the end of the decade. That isn’t expected to happen this time.

• Deficits and debt were already projected to rise over the coming decades as an aging population pushes up the costs of Social Security and Medicare.

• debt has risen , the U.S. is the only country whose debt-to-GDP ratio is expected to continue rising after 2021, according to the International Monetary Fund’s Fiscal Monitor Report.

• Interest costs are expected to eat up a larger share of the federal budget, topping out at $1 trillion a year by the end of the next decade

• The larger the debt grows, the more sensitive it becomes to even small shifts in interest rates, and the more likely it is to crowd out private investment

unemployment in double digits and the virus continuing to spread throughout the country. The pandemic has forced many states to alter reopening plans and could temper the economic rebound expected this summer.