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Budget Deficits and the Economic Growth

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Budget Deficits and the Economic Growth
Budget Deficits and Economic Growth
Joey Willoughby
ECO 203 Principles of Macroeconomics

Instructor: Nathan Rondeau

6/27/2011

Budget Deficits and Economic Growth

Economists generally agree that high budget deficits today will result in the reduction of the growth rate of the economy in the future. The United States budgetary situation has disintegrated significantly since 2001, when the CBO ( Congressional Budget Office ) forecast average annual surpluses of nearly $850 billion from 2009 – 2012. In April of 2011, it was revealed that our nation is 12.7 trillion dollars in debt which surpasses by a wide margin, the 2001 CBO forecast of a cumulative surplus by 2011 in retrospect to the estimated 10.4 trillion public indebtedness. ( cbo.gov) Steps must be taken to curtail this situation immediately if the United States economy is to be sustainable in the future. A high debt level can affect interest rates, inflation and economic growth, but no effect on equilibrium real GDP, thus government spending in excess of government recipiency ultimately redistributes a larger GDP to government provided goods and services. In reality, if the government continues to operate with elevated deficits over an extended period of time, the share of privately owned goods and services will dwindle. In spending more than is collected in tax revenue and etc. the government will engulf a larger portion of economic activity in the future.
(newsobserver.com)
Since 2002, our country has seen the appearance of duel deficits, or a growing budget deficit coupled with a growing account deficit, which manifests the increase of the United States borrowing from foreign nations. The current budget deficit is not as immense as in percentage of GDP terms however it is significantly above a level that is conducive to stable prices and low interest rates – two extremely vital elements of a flourishing economy.


References: http://www.brookings.edu.opinions/2011/0506_debt_ceiling_default_barr.aspx Retrieved electronically June 10, 2011. Case, K.E., Fair,R.C., and Oster, S.E., (2009) Principles of Macroeconomics (9th ed) Upper Saddle River, New Jersey http://www.cbo.gov/ftpdocs/67xx/doc6744/10-13-Long - Term Effects Brief.pdf Retrieved electronically June 8, 2011 Miller, Roger L. (2011) Economics Today: The Macro view and The Micro view (15th ed) Institute for University Studies, Arlington, Texas Addison – Wesley Retrieved June 15, htm Retrieved electronically June 20, 2011 http://www.time.com/time/nation/article/0,8599,2076568 - 4, 00.html Retrieved electronically June 9, 2011
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