Bernardo D. La Fontaine
LP9 Assignment
Can A Country Continue to Afford to Run Deficits Indefinitely? This paper will talk about a country and if it can afford to stay on a deficit indefinitely. So let us take a closer look that this situation and analyze it. I will start by reiterating what my assignment’s question by stating what it is asking. Let’s say that country “X”’s real growth is 2 percent per year, while its real deficit is rising 5 percent a year. Can country “X” stay on this path indefinitely? In my opinion, I would have to say “no” because it isn’t healthy for country to stay on a deficit. So when a surplus happens like it did in 1998 till 2002, the country will go spend happy. This is why I believe there should always be a balanced economy. There should never be too much expansion or contraction in a country’s economy. Here are the reasons why. An expansionary economy is one that helps a country’s economy through a recession by expanding the money supply. They do this by issuing out bonds and lowering interest rates. However, if this is done too much, then inflation happens. Why? You can say that there is too much money circulating. This makes a country’s currency weak. But if a country’s economy is in the opposite direction like in an economic contraction, they are trying to reduce inflation by contracting the money supply and raising interests. Again, if this is done in too much in this direction, the country will go in to a recession and possibly a depression (take a look at the United States economy today). When a country falls into a recession, this brings higher unemployment. This is caused by products and/or services not being in high demand as much as it was a few years ago. As the demand lowers, so do wages and people possibly lose their jobs. When this affect happens, this also lowers consumer spending of major items