...Budget Deficit For many decades, there has been a concern for the deficit within the United States. Many politicians, authors, newscasters, and citizens have expressed their distress in order to resolve or control the issue. Keynesian economic theory states that running a budget deficit is okay, as long as the deficit is not exorbitantly large and is not carried for a long period of time. Even though many experts agree with this notion, having a deficit at all is important to the present and future economic stability of a country. For the most part, the uncontrolled increases in spending and reckless tax cuts in the past have damaged the federal budget, which the White House and Congress have allowed to occur. President Bush has put a fair amount of influence towards the federal deficit in his campaigns, State of the Union Addresses, and policies as President. According to the article titled U.S. Budget Deficit Shrinks, at the end of the fiscal year for 2006, Bush stated that he had officially cut the budget deficit in half to $247.7 billion, as promised, from the projected deficit of $521 billion. The President credited his tax cuts and business tax incentives for the better-than-expected showing in revenues, which drove the deficit to the lowest level in four years. Obviously, there are many that argue against this rationale to the fact that there was more at hand than the President’s policies. The Democrats belittled the sharp reduction in the deficit for the...
Words: 1176 - Pages: 5
...The idea of deficit spending in America is a topic that sparks great controversy and debate, especially with the recent recession. There are many reasons for and against government spending more than it can afford. Some say that it is an ineffective way of dealing with financial issues, as the long-term issues it causes devastates the country. Others believe that it is essential in period of budget deficits and the effects of spending are necessary to rejuvenate the economy. Overall, the huge debt it creates for the government, as well as the impact it has on future generations make deficit spending a practice that can seriously cripple the country’s government. The initial issue deficit spending causes is a large increase in the country’s debt. By definition, deficit spending is spending more money than is being taken in. This will cause even greater debt, as deficit spending is most commonly used in times of recession. In fact, deficit spending with the Recovery and Reinvestment Act in 2009 resulted in over 500 billion more dollars in debt for America. This money has to come from somewhere, and since America already had debt, they had to get loaned more money from other countries. Deficit spending does the exact opposite thing of its purpose: it increases debt. Deficit spending increases an already enormous debt, and its repercussions last for several generations. After long periods of deficit spending take place, the debt accumulates to huge levels, and as a result...
Words: 531 - Pages: 3
...Implications of Budget Deficit in India When a government plans to spend more than its income, it resorts to financing the additional spending through a budgetary deficit. So, traditional definition of a budget deficit is the difference between total government outlays and the revenue receipts. But a complete and technical definition of deficit would be 'the difference between size of the government debt at the end of the year and the corresponding size of the debt a year later. Thus, the budget deficit is funded by a national debt. A healthy practice for any government is to have a balanced budget, but Keynesian economists propose deficit budgeting to overcome a financial crisis. Even with deficit budgeting, the healthy way is to have revenues exceeding non-interest outlays and this excess must be good enough to pay for the interest on government debt to avoid a rising ratio of debt to GDP. In case of India with a 210 billion dollar budget, its deficit pegs at about 6.8 percent of GDP, and when combined with those of state governments, it reaches a hefty figure of 10 percent of the GDP. Comparatively, leading countries of the world work with an average budget deficit of 4 percent of their respective GDPs. India borrows about 10 percent of its GDP every year. With current debt on India being about 75 percent of its GDP, it is required to pay a heavy interest on the borrowings. Implications of heavily deficit budgets in India are - Economic growth in impeded...
Words: 401 - Pages: 2
...Student’s Name Institution Instructor Date Budget Deficit Budget Deficit Budget is an estimate of the income and expenditure for some country for some set period of time say one year. Budgeting is vital in an economic perspective for the economy that desires to meet the needs of its people. Budgeting also aids an economy to hypothesise and attain the best output and revenue from the dealings in the production process. As such budgeting and forecasting serve the basic role of the economic progress of the economy based on the operations of the countries to attain the millennium development goals. Basically, the budgeting approaches used by the economy may create the deficit or at some point result in the surplus. Reduction in tax payments, increased unemployment, poor planning, increased military spending and poor projection and underestimations result in the budget deficit. During periods of economic recession in some country budget deficit is also likely to be experienced. Expansionary fiscal policy may lead to budget deficit since it involves increase in government spending. Such condition is very challenging to the economic growth and development and may also increase the rate of borrowing of a country to surpass its budget (Aaron, 2014, pp. 1). Budget deficit can be explained as the difference between the government revenue and the government expenditure calculated over some set period (one year). It occurs when the expenditure has exceeded the income for some set...
Words: 1957 - Pages: 8
...Twin Deficit For the past 2 years, India has been fighting slow growth, high inflation and the twin deficits – fiscal deficit and current account deficit. The current account deficit reached the peak of 5.3% of GDP in Q1 FY13 which is much beyond the comfort zone of 3%. The fiscal deficit has also proved difficult to control, leading to a large part of borrowing going into servicing the debt rather than towards capital intensive activities. Off late the threat of being relegated to the status of junk bonds has made the government to swing into action and try and take steps to curb the deficits. It is the result of these measures that the fiscal deficit is not expected to go much beyond the government target of 5.3% of GDP. As a part of its efforts, government has also come up with the target of reducing the fiscal deficit to 3% of GDP by 2016-17. In order to rein in on the fiscal deficit, under the direction of Finance Minister, government managed to cut expenditures to the tune of Rs.80000 crores. Besides this, unlike previous years government has managed to keep its stake selling program on track, which is expected to result in the revenue receipts of about Rs.30000 crores. However, the government has also been cutting corners and using financial jugglery to cuts the deficit. Transferring the subsidy payment bills onto the next year and one time receipts from stake sale in PSUs are not effective and long term solution. Apart from this, losses like those of State Electricity...
Words: 529 - Pages: 3
...nondefense spending, increased defense spending and balanced budget. His policies brought success in stimulating the economy. He was able to improve the lives of the people and certain concerns during those times such as recession, unemployment and inflation. In 1985, while efforts have been made by President Reagan to uplift the economy, the US government was still beset by unbalanced budget due to deficits. Thus in his second term, he focused more in addressing this problem. However, the economic policies he implemented appeared to have created a setback in the country’s budget. In addition to the existing deficits prior to his term, deficits continued to increase. Objectives This paper aims to give an analysis on the cause and effect of the deficit problem Reagan faced in his second term and an analysis of the strategies he implemented in solving it. This paper also offers alternative strategies that would allow Reagan to reduce the deficits and balanced the budget. Analysis The Causes of the Budget Deficits This paper discusses three major cause of the budget deficit during Reagan’s term – tax cut, military spending and recession. The administration’s policy for tax cut was implemented to break the postwar trends to help the people and make an economic turnaround. Tax is the major source of...
Words: 2102 - Pages: 9
...Does a Fiscal Deficit Necessarily Lead to Inflation? No. Two arguments are generally given in order to link a high fiscal deficit to inflation. First argument: is based on the fact that the part of the fiscal deficit which is financed by borrowing from the RBI leads to an increase in the money stock. Some people hold the unsubstantiated belief that a higher money stock automatically leads to inflation since "more money chases the same goods". There are, however, two flaws. Firstly, it is not the "same goods" which the new money stock chases since output of goods may increase because of the increased fiscal deficit. In an economy with unutilized resources, output is held in check by the lack of demand and a high fiscal deficit may be accompanied by greater demand and greater output. Secondly, the speed with which money "chases" goods is not constant and varies as a result of changes in other economic variables. Hence even if a part of the fiscal deficit translates into a larger money stock, it need not lead to inflation. Second argument: is that in an economy in which the output of some essential commodities cannot be increased, the increase in demand caused by a larger fiscal deficit will raise prices. There are several problems with this argument as well. Firstly, this argument is evidently irrelevant for the Indian economy in 2002 which is in the midst of an industrial recession and which has abundant supplies of foodgrains and foreign exchange. Secondly, even...
Words: 316 - Pages: 2
...Our country has Budget deficits and government debt have significantly increased in many countries around the globe over the past 20 years, and almost all these countries are now faced with the challenge of building back up, their economy. The current problem of budget deficits and public debt has come about mainly because the growth in government spending has exceeded the growth of goods and services. “While the average ratio of tax revenue to GDP in industrial countries increased from 28 percent in 1960 to 44 percent in 1994, the corresponding ratio for government expenditures rose from 28 percent to 50 percent.” (McDermott & Wescott, 1997). Given the high levels to which taxes have risen and the danger of stunting growth by raising taxes further, to say nothing of the political consequences of trying to do so, it is reasonable to say that reducing government spending offers the best means, if not the only means, of eliminating these fiscal monetary inequalities. Reducing government spending is not as easy as it may sound. According to traditional Keynesian theory, if you manage to reduce the government deficit, you run into another problem: the country might slide into recession. Why is this? Budget deficits, despite their unfavorable reputation, are not always bad. They at sometimes can indicate the government is buying goods and services, is paying wages to its employees, and is making transfers of money to its needy citizens. In doing so, it is putting money into...
Words: 1142 - Pages: 5
...Fiscal Deficit Of The 11th 5 year Plan The Arab street and the political will to rein in borrowing for consumption may decide the fate of finance minister Pranab Mukherjee’s desire to peg the fiscal deficit in 2011-12 at 4.6% of the gross domestic product (GDP). The fiscal deficit target of 4.6%, 0.2 percentage points lower than Mukherjee’s target set last year, rests on two crucial assumptions: international prices of oil and fertilizers will remain in line with the current fiscal’s prices and Mukherjee can resist political pressure to enhance spending on consumption during the course of the year. Add to these two assumptions the forecast of 9% economic growth next fiscal and 18% increase in tax collections, and the government expects to keep borrowings under check and ease the pressure on the Reserve Bank of India to push up interest rates to combat inflation. The fiscal deficit, which represents the borrowing to cover the excess of expenditure over revenue, has been at the heart of the budget exercise. Mr. Pranab Mukherjee’s speech identified private investment as a key driver of economic growth and indicated the government has tried to curtail its borrowing to give private sector more space to raise money. The budget documents were far more explicit on the government’s approach to Monday’s budget. “The net borrowings from the open market in 2011-12 have been estimated after factoring private sector requirements,” the budget’s fiscal policy statement said. Subsequently...
Words: 1551 - Pages: 7
...Efforts to Reduce the Budget Deficit Melissa Hillard ECO203: Principles of Macroeconomics (BAJ1347A) Instructor: Kathryn Armstrong December 9, 2013 Efforts to Reduce the Budget Deficit Between the years of 1980 and 1993, budget deficits amounts increased and the national debt tripled. The public debt in this country has grown by more than $500 billion each year, in July 2012 nominal GDP was $15.8 billion. The ratio of debt reached a 10 year low in 1981 (32.8%) and went to 73% in 1993. By 2012 it was almost 100%. The actions taken by Congress since 1985 and the current debates between the Whitehouse and Congress, including what measures are necessary to address spending and revenue, will be reviewed. In 1981 President Reagan’s advisors proposed a 30% reduction in personal income taxes and an even bigger cut in corporate profit taxes. The actual result was a 25% cut in personal income taxes. At the time there was a conflict as to why the taxes were cut. There were several groups that had different opinions as to why President Reagan cut the taxes and what his expected results were. “Some supply-side economists argued that the increased incentives to work, save, and invest would actually result in increased tax revenues” (Amacher & Pate, 2012). Though there were some effects on tax revenue, there were not enough to offset the original tax cut. A second group believed that the purpose of the tax cut was to limit the revenue source that the government was...
Words: 1033 - Pages: 5
...Assignment DEFICIT FINANCING: TEORY AND PRACTICE IN BANGLADESH Submitted By Zahirul Islam [pic] DEFICIT FINANCING: TEORY AND PRACTICE IN BANGLADESH INTRODUCTION In the past as today, the deficit budget policy is famous instrument of fiscal policy used to increase the rate of economic growth of the country. That way of financing was establish after the two world wars, oil crises and current financial and economic crises. The objective in seeking deficit financing is to finance the shortfall between government expenditures and tax receipts. Tax increases are not politically palatable. Governments often resort to deficit financing when other components of GDP such as private consumption decline during recessionary periods. Such deficits, if undertaken for a short period with an action plan to create equivalent surplus in near future, could reverse decline in real GDP and stimulate growth in real GDP for the benefit of citizens of the nation. Structural deficits are indicative of inability to reduce entrenched government expenses. The sustainable level of accumulated deficits can also be determined with reference to both the deficit servicing requirements and deficit servicing sources. This analysis will entail identification of cause and effect relationships that determine the factors influencing each of these two areas. As shown by other researchers, the explanatory variables leading to deficits include domestic budgetary receipts;...
Words: 5493 - Pages: 22
...Budget Deficits, National Saving, and Interest Rates William G. Gale and Peter R. Orszag September 2004 Brookings Institution and Tax Policy Center. This paper was prepared for the Brookings Panel on Economic Activity, September 9-10, 2004. We thank Emil Apostolov, Matt Hall, Brennan Kelly, and Melody Keung for outstanding research assistance; Alan Auerbach, William Brainard, Robert Cumby, Bill Dickens, Doug Elmendorf, Eric Engen, Laurence Kotlikoff, Thomas Laubach, Maria Perozek, George Perry, Frank Russek, Matthew Shapiro, and David Wilcox for helpful discussions; and Eric Engen, Jane Gravelle, and Thomas Laubach for sharing data. ABSTRACT This paper provides new evidence that sustained budget deficits reduce national saving and raise interest rates by economically and statistically significant quantities. Using a series of econometric specifications that nest Ricardian and non-Ricardian models, we obtain evidence of strong non-Ricardian behavior in aggregate consumption. Consistent with several recent studies, we find that projected future deficits affect longterm interest rates, but current deficits do not. Our estimates suggest that each percent-ofGDP in current deficits reduces national saving by 0.5 to 0.8 percent of GDP. Each percent-of-GDP in projected future unified deficits raises forward long-term interest rates by 25 to 35 basis points, and each percent-of-GDP in projected future primary deficits raises interest rates by 40 to 70 basis points...
Words: 31953 - Pages: 128
...Video 1: 1. Discuss the difference between the U.S. federal deficits and the federal debt. A federal deficit is the difference between receipts (money the federal government takes in from taxes/other revenues) and outlays (the money government spends), each year. In contrast, the federal debt is the total amount of money that the government has borrowed, or the total amount of outstanding liabilities. Debt can be thought of as years of accumulated deficits and surpluses. One main difference between debt anf deficit is that a deficit is calculated over a specific interval such as a particular quarter of the year. 2. Explain the nature of federal expenditures and why so much of the budget is "uncontrollable." Uncontrollable federal expenditures result from government programs such a Social Security in which particular groups are automatically eligible for certain benefits. These kinds of expenditures are known as entitlements. Because Congress has set laws in which the government is obligated to grant a set amount of money to a variable amount of individuals who qualify for the entitlement, the total expenditure of these programs cannot be controlled. Large expenditures cannot be determined by how much Congress...
Words: 478 - Pages: 2
...ATTENTION DEFICIT DISORDER Attention Deficit Disorder: Alternatives to Stimulant Medication Eng 215 Abstract Today, millions of children are taking stimulant medications for ADHD. Most of these children are being medicated without even receiving a proper diagnosis. While on these medications, children experience harmful side effects. Some children have died from complications related to the medication. The list of symptoms for ADHD reads like a list of bad behavior not a medical condition that warrants medication. Parents are outsourcing their parental responsibilities to pharmaceutical companies. Alternative treatments are available and have been proven effective. Attention Deficit Hyperactive Disorder: Alternative Treatments According to the 1994, Diagnostic and Statistical Manual of Mental Disorders, 4th ed., (DSM-IV) Attention Deficit Hyperactive Disorder (ADHD) is a disruptive behavior disorder characterized by the presence of a set of chronic and impairing behavior patterns that display abnormal levels of inattention, hyperactivity, or their combination. (as cited at http://www.healingwithnutrition.com/adisease/add-adhd/cdcplan.html) ADHD is mostly diagnosed in children and adolescents. (DEA, 1995) ADHD is not a disease but yet most children diagnosed as having ADHD are treated with medication. The standard ADHD diagnosis is divided into three types: Inattentive type, hyperactive type, and hyperactive-impulsive...
Words: 2568 - Pages: 11
...When a child starts school, that experience is an eye-opener for parents. At that time, they see their child’s development and behavior in comparison with other children. Most of their ‘problems’ arise from the fact that they process emotional and intellectual information somewhat differently from ‘normal’ children (Wrights Law). Children with Attention Deficit Disorder (ADD) or Attention Deficit Hyperactivity Disorder (ADHD) may exhibit symptoms as early as the age of six or seven but sometimes even sooner. Children with ADD suffer in many ways if their condition is not diagnosed and is left untreated. They tend to be more inattentive, careless, unorganized and also impulsive. ADD has symptoms that affect concentration and a child’s ability to focus (Native Remedies). ADD can also cause mood swings and other social problems. Children with ADD should receive treatment in the form of counseling and the appropriate medication so the child can have a more ‘normal’ and happy childhood. Usually, ADD symptoms will appear over the course of many months rather than all at once. If the appearance of these symptoms is not managed correctly, it can lead to low self-esteem and other behavioral problems in the years to come. Deciding on what ADD/ADHD medication is best fit for the child can be difficult, but doing your homework helps. The first thing to understand is exactly what the medications for ADD and ADHD can and cannot do. ADD medication may help improve the child’s...
Words: 2399 - Pages: 10
