Question

Discussion for Chapter 29 ( principle of Economics Twelfth Edition)

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At the end of the presentation and notes for this chapter,29 there is a section that discusses the pros and cons of government deficits. Choose a side (pro or con) and argue your reasoning for choosing that stance. Use sound economic concepts/theories when answering (not your opinion). You may need to use outside sources to develop your argument. If so, cite your sources.

Answer 1

Due to government deficit there is more loss to the economy than profit as when government is in deficit to cover that government should take loans from other countries which is like giving advantage to those countries and giving them an opportunity to exploit our country.

So cons of government deficit

1) When there is government deficit government will not save any money as it is not having enough amount ,so if there is any emergency or need than government will take loan from other countries which will make our country indebted to other country. Hence our government will pay both loan and interest for the amount taken from other country. Thus most of the times it will lead to bad economy.

2) Government deficit always leads the government to hike tax rates and reduce its services and other welfare policies so that it can cover deficit.

3) Government debts leads to reduction in government spending which means there will be reduction in infrastructure development in the country and it will effect both economy and employment rate negatively.

4) Due to interest payments made by the government there will be leakage of money in the economy.

5) Due to decrease in government spending there will be large increase in private spending in the economy.