...Week 3 Assignment Teketreun Prince ECO 203 Principles of Macroeconomics Instructor Nathan Rondeau March 24, 2014 The efforts to reduce the deficit and debt in the United States budget has two different views. There is some politicians who think more spending is the best short term solution. The other side believe in a smaller government role will benefit the deficit and debt through a long term solution. In 1985, the deficit was over 200 billion and there was a plan put in place to reduce it. Aftermany years of talk about a balanced budget amendment to the Constitution, which would require a balanced budget on an annual basis,Congress passed the Gramm–Rudman–Hollings Act in 1985. (Amacher, R., Pate, J., 2012) This act was a strategic plan to reduce the deficit to zero in a certain time period. This act is a good guideline to start from, but it doesn’t project things like war or aids that usually sends the budget in another direction. The projection to the economy direction is important as well, in order to reduce spending and slowly repay the deficit. There is one group believes a cut in federal spending and small tax increase will reduce the deficit and debt quickly. This is one reason that deficit in the earlier years where reduce in a good timely manner with a small affect. The other group of people would like to increase taxes and spend more, in order to pay the debt off. The Clinton era was the last to have surplus in the federal government with a...
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...originated at the Middle East. Crude oil is one of the inputs of production of many goods and services that much of the world comes from Saudi Arabia, Kuwait, and other Middle East Country that which included in the monopoly. Monopoly is one of the market structures that a firm is a sole seller of product without close substitute. When some event (usually political in origin) reduces the supply of the crude oil flowing from the region, the prices of oil rises around the world. Because they think that it would be much profitable to them. But since the U.S is much affected to the inflation of the oil it is not favourable for them. U.S. firms that produce gasoline, tires, and many other products experience rising cost, and they find it less profitable to supply their output of goods and services at any given price level. The result is a leftward shift in the aggregate-supply curve, which in turn leads t stagflation. The countries with large oil reserves got together as member of OPEC, the Organizational of Petroleum Exporting Countries. OPEC is a cartel—a group of sellers that attempts to thwart competition and reduce production to raise prices. And indeed, oil prices rose substantially. From 1973 to 1975, oil approximately doubled in prices. Oil importing countries around the world experienced simultaneously inflation and recession. The U.S. inflation rate as measured by the CPI exceeds 10 percent for the first time in decades. Unemployment rose from 4.9 percent in 1973 to 8.5 percent...
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...have been making significant cuts to state education in an effort to work to reduce the United States’ 10% deficit per year. Bill Gates argues that the long term equity from spending on education and healthcare far outweighs the equity from spending in other governmental areas. Gates’ solution to the problem is simple. His first proposal revolves around the idea of upgrading our tools and technology. In a country that spends more on education than most other countries, his ideas here are well deserved. Next, Gates believes that accounting for schools should be closer to Generally Accepted Accounting Principles and should be clear and honest. Gates argues that the current accounting method for schools follows a “buy now, pay later,” mentality. And, finally, Gates preaches that Politicians should be rewarded for their efforts to reduce the deficit. States have used many different methods to hide their ‘budget balancing’ accounting practices. Moreover, in future years, educational spending is projected to go up, perpetuating the already monumental educational budget deficit. This ongoing ‘debt clock’ should raise red flags to State Legislators to this systemic problem. Unfortunately, the only way to accommodate future generations and safeguard them from inheriting a massive educational debt, is to cut education spending in half, which, given our current position, cannot be our solution. So is there a way to reduce our educational spending, increase our educational revenue...
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...Work through the National Budget Simulation (http://www.econedlink.org/national-budget-simulator.php) in an effort to achieve a budget deficit of $1100B dollars. Scenario: The President of the United States has been elected on the promise of fiscal responsibility. By law he cannot reduce the net interest paid on the debt. The President's budget is projected to leave the country with a $1100B deficit. The United States is subject to global security concerns. At the same time, a lingering recession and financial markets rescue package reduces the government's tax revenues and forces the government to increase its spending on unemployment benefits, welfare, housing assistance, food stamps, and other need-based programs. Because of the increased spending and reduced revenues, the nation falls into a projected deficit of nearly XXX in 2015 (This is the first piece of the information you need to find). The President is committed to keeping his campaign promises in order to avoid future crisis over the US's financial standing. He must raise taxes, cut spending, or a combination of both to stay within his new guideline of a deficit below $1100B. The President turns to you, his trusted economic advisor, for help. (Note: While some events in this scenario reflect actual events, others are hypothetical for the purposes of this exercise. Budget figures in the simulation are actual White House figures of 2012, including spending and revenues of 2012.) Since the simulation is using...
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...economic period trailing the Great Depression. On his first term, President Reagan’s main objective was to address different economic problems through tax cut, decreased 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...
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...unemployment * low inflation * rapid growth Employed: person over 16 * works for pay for 1 or more hour * works without pay for 15 or more hours * has job but temporarily absent Unemployed: person over 16 * not working * available for work * made effort to find work Not in labor: not looking for job Labor Force = employed + unemployed Population over 16 = labor force + not in labor force Unemployment rate = unemployed / labor force - underestimated in recession Labor force Participation rate = labor force / population over 16 Discouraged Workers: want to work but cannot find the work * drop from unemployed Discouraged worker Effect: * lowers unemployment rate and labor force Frictional Unemployment: due to normal working, job/skills * short run * can never be ZERO Structural Unemployment: due to changes in structure of economy * long run Cyclical unemployment: occur during recession and depressions Natural Rate of unemployment: normal part of the functioning of the economy * frictional + structural Cost of Unemployment: * not evenly distributed * rising prices -> erosion of domestic currency -> reduce money value Inflation: increase in overall price * inflation HIGHER than expected benefit DEBTOR * inflation LOWER than expected benefits CREDITOR Deflation : decrease in overall price Price Indexed: measure overall prices * CPI: average change over time in price...
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...Question 1: Since 2008, we can observe and note that the cash rate in Australia has seen a tremendous downturn till 2010, after which there was a positive turn for some time. But, soon in the year of 2012 we again saw a downward flow of cash rates recently touching all-time low of 2% in May 2015. The main reason for the drop of the cash rate was that the reserve bank of Australia still believes that the Australian currency is overvalued and to make it bring down to its actual value the rate cut was required. An overall assessment made for the current situation in Australia would be that the reduction in the cash rate would increase the export opportunities for the country and would act as fertilizers. The housing sector for the country has shown a good growth and this rate cut would also help in the easing of unemployment. The consecutive steps have been taken by Reserve Bank keeping in mind the fact that a lower exchange rate is needed for a balanced growth of the Australian Economy. Cash rate graph (source: www.global-rates.com) The Australian economy has constantly been altering cash rates as their monetary policy in the earlier years as inflation was never a big concern for the economy. We can further understand how the altering of cash rates will influence macroeconomic aggregates: Aggregate Demand and Aggregate supply curve From the shown diagram we can see that the demand AD1 is intersecting the supply AS1 in a flat area of aggregate supply. This situation is mostly...
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...Not surprisingly the Joint Select Committee on Deficit Reduction or “Super Committee” was unable to reach any agreement about how to “cut” about $1.3 trillion from the federal deficit over the next 10 years. These “cuts” were required by the passing of the Budget Control Act of 2011 on August 2, 2011. The bill was the result of a compromise reached due to the logjam created in Congress regarding raising the debt limit ceiling. If Congress fails to produce a deficit reduction bill with at least $1.2 trillion in cuts, then Congress can grant a further $1.2 trillion increase in the debt ceiling but this would trigger across-the-board cuts called sequestration. These cuts would be equally split between security and non-security programs. The across-the-board cuts would apply to mandatory and discretionary spending in the years 2013 to 2021 and be equal to the difference between $1.2 trillion and the amount of deficit reduction enacted by the super committee. It is important to note that the act will not actually reduce the overall U.S. debt over the 10-year period it is specified for, only slow down the existing rate of growth of the debt. This is due to the fact that the cuts will not reduce federal spending in absolute terms, but rather reduce the year-to-year increases in spending from what had previously been anticipated. To put it more clearly, the “cuts” are merely a slowing down of the increase, rather than a decrease from current, actual, base-line spending. Personally...
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...1. Executive Summary France is one of the world’s five leading economies, as measured by GDP, has highly developed social and welfare model and is led by the socialist government. Though it scores well against numerous indicators of well-being, the state of economy is far from optimal. In this report we provide the brief economic outlook of France in 2014. It shows that the main challenges are the big budget deficit that leads to high government debt, too-high-taxes that slow the growth of the economy in all sectors, huge unemployment level and negative trade balance. Though in 5 years the economic situation is likely to improve comparing to today’s level, we forecast that the pace will be slower than needed. The structural reforms should be performed as soon as possible. We recommend use the supply-side policies, that concentrate on deregulation of the labor market, downsizing the government sector’ share in the economy by privatization of public enterprises and services, and lowering the tax rates. We believe these measures will help to boost the competitiveness of French companies and products in domestic and world markets, and will improve the growth of France’ economy in the medium and long term. 2. Current state of economy France continues to underperform in 2014. In October 2014 the ratings agency Standard and Poor’s lowered its outlook from “stable” to “negative,” saying its financial recovery is “elusive”. Main indicators please see in Appendix 5.1. GDP...
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...Introduction On 10th October 2014, Dato’ Sri Najib Tun Razak, a Prime and Finance Minister, unveiled Budget 2015 addressing key issues on promoting fiscal sustainability and easing the transition to GST for business and consumers, while placing the nation on a firmer growth trajectory towards Vision 2020. Part 1 The three key issues concerning the individuals and sole-proprietor business have been introduced in 2015 budget. The first issue is about individual tax. The first change is that the income tax rate is reduced by 1 to 3% for resident individuals depending on different levels of chargeable income since Year of Assessment (YA) 2015 (KPMG, 2014). This results in that tax payers with family and income of Rm4,000 per month will not have tax liability. Besides, the income tax rate for non-resident individuals is reduced by 1% from 26% to 25% (KPMG, 2014) Chargeable Income(RM) | Current Tax Rate (%) | Proposed Tax Rate (%) | Reduction(%) | 1—5,000 | 0 | 0 | - | 5,000—20,000 | 2 | 1 | 1 | 20,001—35,000 | 6 | 5 | 1 | 35,001—50,000 | 11 | 10 | 1 | 50,001—70,000 | 19 | 16 | 3 | 70,001—100,000 | 24 | 21 | 3 | 100,001—250,000 | 26 | 24 | 2 | 250,001—400,000 | 26 | 24.5 | 1.5 | Exceeding 400,000 | 26 | 25 | 1 | This tax brackets illustrates the chargeable income is raised from RM100,000 to RM400,000 and the rate for chargeable income band exceeding RM100,000 is structured into three bands with reduced rates of 24%, 24.5% and 25%, which results in existing...
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...of Governments also adjust taxes in an at- Kobe cost $7.3 billion to build. Yet as skep- tempt to manage aggregate demand. They tics had predicted, it currently carries very may reduce taxes to try to stimulate the little traffic—about 4,000 cars a day. By economy or raise taxes when they believe comparison, America’s longest suspension that aggregate demand is too high. bridge, the Verrazano Bridge that links New In this chapter, we will learn how discre- York City’s Staten Island to the borough of tionary fiscal policy fits into the model of Brooklyn, carries more than 300,000 cars short-run fluctuations we developed in each day. Chapter 10. We’ll see how deliberate In Japan, stories like this are common. During the 1990s the Japanese government What you will learn in this chapter: changes in government spending and tax policy affect real GDP. We’ll also see how ® What fiscal policy is and why it is an important tool in managing economic fluctuations ® Which policies constitute an expansionary fiscal policy and which constitute a contractionary fiscal policy ® Why fiscal policy has a multiplier effect and how this effect is influenced by automatic stabilizers ® How to measure the government budget balance and how it is affected by economic fluctuations ® Why a large public debt may be a cause for concern ® Why implicit liabilities of the government are also a cause for concern ...
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...indiscriminate across-the-board budget cuts are imposed on government programs to force reductions in spending and meet budgetary goals established by statute. If sequestration does occur, $1.2 trillion in budget cuts will begin on January 2, 2013, and continue through the following nine years (FY 2021). Generally, sequestration spending cuts are divided equally between eligible defense and non-defense programs. There are, however, some domestic entitlement programs – Social Security, federal retirement programs and Medicaid – that are exempt from sequestration budget cuts. In addition, the Government Accountability Office (GAO) issued a decision on May 21, 2012, extending exemption from sequestration to U.S. Department of Veterans Affairs (VA) spending. In issuing its decision, the GAO determined that the Statutory Pay-As-You-Go Act of 2010 exempted VA spending – with the exception of limited administrative expenses – from the impact of sequestration by overruling language within the Balanced Budget and Emergency Deficit Control Act of 1985, which limited cuts on veterans’ medical care to 2%. The GAO decision affirmed an April 2012 opinion by the Office of Management and Budget (OMB) which similarly concluded that sequestration budget cuts do not apply to VA spending. While not exempt from sequestration, other programs are limited to a fixed percentage of cuts; Medicare cuts, for example, are limited to 2%. It is also important to remember that the Budget Control Act of 2011...
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...Budget: A budget (from old French bougette, purse) is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending.[1] A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods. In other terms, a budget is an organizational plan stated in monetary terms. In summary, the purpose of budgeting is to: * Provide a forecast of revenues and expenditures, that is, construct a model of how our business might perform financially if certain strategies, events and plans are carried out. * Enable the actual financial operation of the business to be measured against the forecast. A government budget is a legal document that is often passed by the legislature, and approved by the chief executive-or president. For example, only certain types of revenue maybe imposed and collected. Property tax is frequently the basis for municipal and county revenues, while sales tax and/or income tax are the basis for state revenues, and income tax and corporate tax are the basis for national revenues. The two basic elements of any budget are the revenues and expenses. In the case of the government, revenues are derived primarily from taxes. Government expenses include spending on current goods and services, which economists call government consumption; government investment expenditures such as infrastructure investment or research expenditure; and transfer payments like unemployment...
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...How To Reduce Federal Deficits Like most Americans I want to educate myself in ways to reduce the deficit of this nation so I can sleep more sound at night. U.S. federal deficits should be reduced by cutting certain entitlement programs, implementing privatization, and increasing taxes on the rich. In this essay, I will provide hard facts that will not only reduce federal deficits, but also increase productivity and employment. These are specific ways to cut spending and raise revenue. Medicare, Medicaid and Social Security are the three of the government’s most popular and relied upon programs. Congress needs to curb the growth in spending on them and other entitlements. Entitlement programs have accounted for more than fifty percent of the federal spending since the 1980’s. It’s the biggest driver of the long-term national debt. Eliminate all the wast, fraud and abuse you can find. Over eighty billion is defrauded from these programs every year. Cut more out of discretionary programs, that includes defense. All these moves combined may not clear the national debt, but that’s because theyre not the main cause of long-term deficits. With an aging population and rising health care costs which in return there are fewer workers per retiree paying taxes into the programs. As a result speding on medicare, Medicaid, and to an extent Social Security will rise substantially absent structural changes. Most specifically in the way health care is delivered and reimbursed. When measured...
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...S169-S182_Krug2e_Macro_PS_Ch13.qxp 2/25/09 8:02 PM Page S-169 Fiscal Policy 1. The accompanying diagram shows the current macroeconomic situation for the economy of Albernia. You have been hired as an economic consultant to help the economy move to potential output, YP. Aggregate price level LRAS SRAS P1 E1 AD1 Y1 YP Potential output Real GDP a. Is Albernia facing a recessionary or inflationary gap? b. Which type of fiscal policy—expansionary or contractionary—would move the economy of Albernia to potential output, YP ? What are some examples of such policies? c. Illustrate the macroeconomic situation in Albernia with a diagram after the successful fiscal policy has been implemented. 1. Solution a. Albernia is facing a recessionary gap; Y1 is less than YP. b. Albernia could use expansionary fiscal policies to move the economy to potential output. Such policies include increasing government purchases of goods and services, increasing government transfers, and reducing taxes. c. Aggregate price level LRAS SRAS P2 P1 E2 E1 AD2 AD1 Y1 YP Real GDP Potential output Recessionary gap S-169 MACROECONOMICS 29 13 ECONOMICS chapter: S169-S182_Krug2e_Macro_PS_Ch13.qxp 2/25/09 8:02 PM Page S-170 S-170 MACROECONOMICS, CHAPTER 13 ECONOMICS, CHAPTER 29 2. The accompanying diagram shows the current macroeconomic situation for the economy of Brittania; real GDP is Y1, and the aggregate price...
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