Current Event Analysis

Current Event Analysis The article “Why deficits have fallen so dramatically” explains the reasoning behind the decrease in the U.S. deficit over 5 years. A deficit is the difference between the amount of money that the government spends and the amount of money that the government takes in. annually. It is explained that the U.S. deficit fell by a third from 2013 to the present date. Originally, it was 4.1% of the Gross Domestic Product, but in 2014 it sharply fell to a low 2.8%. Economists explain that the statistic regarding the U.S. deficit in 2014 is the lowest has been since 2008. It is explained that this change is partially due to and improved economy and increased tax rates on high-income individuals therefore increasing the overall tax intake by the government. Furthermore, the article explains that the reason the deficit was higher than today’s number was due to programs like Medicare, Medicaid, and Social Security. This article relates to the Loanable funds market because deficits influence savings, investments and interests represented in the LFM model. Decrease in deficit decreases the demand for loadable funds. This causes a leftward shift in the DLF curve changing the interest rate, but also investments and savings. Disregarding the Ricardo Barro effect, the investment increases, and the savings decrease. Also in the model represented below there is less crowding out as a result.
Loadable Funds Market

I believe that it was a fair decision to tax the high income individuals more, relative to the middle class. It balances out the economy because it doesn’t take away the resources from the struggling poor or middle class, who needs much more financial assistance to begin with. The rich upper class can afford high taxes while the other end of the society couldn’t. It would not be practical if the government tried to reduce the deficit by equally increasing the tax on all people.