The Us Budget Deficits
Budget Deficits: Is the U.S going bankrupt?
ECO203: Principles of Macroeconomics
July 25, 2011
The role of government in the U.S economy extends far beyond its activities as a regulator of specific industries or gatekeeping. The government is also responsible for managing the overall pace of economic activity, with its objective of maintaining high levels of employment and controlling price stability (inflation). It has two main tools for achieving these goals: fiscal policies, which is done through taxes and spending and monetary policies, through which it manages the supply of money. In this paper, I will discuss the why high deficits of today will reduce growth rate of the economy in the future, look at the history of our nation’s debt and deficits, different elements that causes of deficit and why the cause actually matters, what role the fiscal and monetary policies have to lead to higher or lower budget deficits and how deficits affect the overall long-term economic growth and debt of the U.S.
Let us first begin by learning the difference between the terms debt and deficit. In economics, the term deficit means a shortfall in revenue of a fiscal year. It is when the government’s revenue called receipts, which are collected taxes (payroll, corporate, excise, income and social insurance), fee revenues and tariffs that are called receipts are lower that what is spent called outlays. In other words, the federal budget deficit is the yearly amount by which spending exceeds revenue. The term debt is described as an accumulation of deficits so the national debt is the total amount of money owed by the government. It is calculated by adding all of the deficits minus the surpluses since the nation’s inception and you get the current national debt. According to Econintersect, “the estimated 2011 budget deficit is at almost $1.5 trillion, following deficits of $1.4 trillion in 2009 and $1.3 trillion in 2010.” ¶ 1. This is disturbing when measured as a
ECO203: Principles of Macroeconomics
July 25, 2011
The role of government in the U.S economy extends far beyond its activities as a regulator of specific industries or gatekeeping. The government is also responsible for managing the overall pace of economic activity, with its objective of maintaining high levels of employment and controlling price stability (inflation). It has two main tools for achieving these goals: fiscal policies, which is done through taxes and spending and monetary policies, through which it manages the supply of money. In this paper, I will discuss the why high deficits of today will reduce growth rate of the economy in the future, look at the history of our nation’s debt and deficits, different elements that causes of deficit and why the cause actually matters, what role the fiscal and monetary policies have to lead to higher or lower budget deficits and how deficits affect the overall long-term economic growth and debt of the U.S.
Let us first begin by learning the difference between the terms debt and deficit. In economics, the term deficit means a shortfall in revenue of a fiscal year. It is when the government’s revenue called receipts, which are collected taxes (payroll, corporate, excise, income and social insurance), fee revenues and tariffs that are called receipts are lower that what is spent called outlays. In other words, the federal budget deficit is the yearly amount by which spending exceeds revenue. The term debt is described as an accumulation of deficits so the national debt is the total amount of money owed by the government. It is calculated by adding all of the deficits minus the surpluses since the nation’s inception and you get the current national debt. According to Econintersect, “the estimated 2011 budget deficit is at almost $1.5 trillion, following deficits of $1.4 trillion in 2009 and $1.3 trillion in 2010.” ¶ 1. This is disturbing when measured as a
References: Anonymous. (2011, January 27). USA Budget Deficit for 2011 $1.5 trillion and Gets Worse In Following Years http://econintersect.com/b2evolution/blog1.php/2011/01/27/usa-budget-deficit-for-2011-1-5-trillion-and-gets-worse-in-following-years Anonymous, (2011) http://www.coastlinefinancialsolutions.com/blg/521/what-does-14-trillion-look-like.html Case, K., Fair, R., & Oster, S.(2009) Harrison, E (2010, October 7). Does focusing on deficit reduction reduce deficits? Retrieved on July 25, 2011 from http://www.creditwritedowns.com/2010/10/does-focusing-on-deficit-reduction-reduce-deficits.html Lester, D., (2010, August 2). Greenspan Says Lower Taxes Good, Outrageous Deficit Spending Bad Policy: The Concise Encyclopedia of Economics, Library of Economics and Liberty. Retrieved on July 25, 2011, from http://www.econlib.org/library/Enc/MonetaryPolicy.html