...DQ 1. How does a government budget deficit and surplus affect the economy? During what periods in recent history has the U.S. run budget deficits and budget surpluses? What were the reasons for the deficits/surpluses during those time periods? When the government runs a budget deficit, it is essentially spending more money than it is taking in. The caveat to this is the accounting method used to measure expenditures. For example, the Social Security fund creates an expense for the future expense. A deficit is not a bad thing though. A deficit means the government is pending money and that spending can be as investment in the future (assets) or to help the economy grow out of a recession. The internet is an amazing source to locate data. I found a site with tons of spreadsheets you can download to see the history of the US budgets, spending, and debt. The government has almost always run deficits so it was quite easy to locate two of them. The first one I chose was the largest the deficit had been since the recording had started. From 1982 to 1986 when Reagan was President the deficit hit $1 and $2 billion dollars for the first time in history. This was also a time of recession in the economy. This was still only between 4% and 6% of GDP. The next period of deficits started in 2002 and have continually increased since that time. The percentage to GDP from 2002 to 2008 was between 1.5% and 3.2% though. In 2010, the percentage of the deficit to GDP spiked at 10.7%, the highest...
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...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...
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...tracked using a national debt clock. Nearly two-thirds of the public debt is owed to the people, businesses and foreign governments, the rest is owed by the government to itself, and is held as Government Account securities. Public debt is “the total amount of money owed by the federal government to the owners of government securities; equal to the sum of past government budget deficits less government budget surpluses” (McConnell, Brue, Flynn’s, Macroeconomics: Brief Edition, 2e, February 7, 2012, p192). The debt is an accumulation of Federal budget deficits. In efforts to stimulate economic growth, current and past administrations have created enormous budget deficits. President Obama added the economic stimulus package, the Obama tax cuts and roughly $800 billion a year in military spending since 2008. The national debt grew rapidly even before the 2008 financial crisis. President Bush added the EGTRRA and JGTRRA tax cuts and the War on Terror, which ballooned the national debt from $6-$9 trillion, a 50% increase. The $700 billion bailout expanded it to $10.5 trillion by December 2008. President Reagan cut taxes, increased defense spending and expanded Medicare, all of which increased the national debt. All of these Presidents also suffered from lower tax receipts resulting from recessions The United States debt also increases due to selling U.S. Securities. U.S....
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...Case Study 1, 2, 3 OIL AND THE ECONOMY WHERE IS ALL THE CURRENCY THE HISTORY OF U.S. GOVERNMENT DEBT Submitted by: Julie Ann G. Ropan Carl Cedric P. Albunian BSBA- Bus. Econ III- A Submmited to: Mrs. Pimeh C. Tolentino PH.D Introduction The large production of oil is 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...
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...European debt crisis and its impact on worldwide economy Shanika Mitchell-Gregg April 30, 2012 Dr. Tzu-Man Huang BUS 5200 Strategic Finance for Executives EMBA, 2011-12 (Stockton Cohort #7) “The European Union only takes action after the facts. They only address a situation when it has already become a problem.” Zdeneil Kudrna, political economist The European debt crisis was brought on by several Eurozone countries running large budget deficits and borrowing money from central European banks. Out of 27 member states, 17 of those countries use the euro as their currency. The larger countries involved were; Italy (the worst effected), Germany, Spain, Portugal, Greece, Switzerland, Britain and Ireland. The European economic debt crisis has resulted from a combination of complex factors including; the interconnection in the global financial system, that if one nation defaults on its sovereign debt or enters into recession putting some of the external private debt at risk. Easy credit conditions, during the 2002–2008 were a period ones were encouraged of high-risk lending and borrowing practices. International trade imbalances or international interconnection of debt protection, institutions entered into contracts called credit default swaps (CDS) that result in payment should default occur on a particular debt instrument (including government issued bonds). But, since multiple CDS's can be purchased on the same security, it is unclear what exposure each country's...
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...taxes (taxes minus transfers) has an expansionary (contractionary) effect. 4. What is the balanced budget multiplier? 5. Explain why discretionary fiscal policy has not been very effective in reducing recessions in the United States. 6. What are the “time lags”? 7. What is meant by "automatic stabilization"? What are the main automatic stabilizers? 8. What is meant by "official budget deficit"? by "structural deficit"? Why is the structural budget deficit a better measure of the intent of fiscal policy? 9. What does it mean that "fiscal policy is expansionary (or contractionary)"? How does one determine whether fiscal policy is expansionary or contractionary? 10. In what ways might budget deficits be bad for an economy? In what ways might they be good for an economy? 11. What is meant by “crowding-out”? 12. Explain the relation between the budget deficits and the trade deficits. 13. What is meant by the "national debt"? What is the difference between "budget deficit" and "national debt"? What is the difference between "gross national debt" and "net national debt"? 14. What is the difference between a Treasury bill, a Treasury note, and a...
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...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...
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...3, 2, 1: Global Debt Meltdown We are steamrolling toward a massive global debt meltdown, and at this point world leaders seem to be all out of solutions. Over the last 30 years or so, the greatest debt bubble in the history of the planet has produced unprecedented prosperity in the western world. But now that debt bubble is starting to burst and the bills are coming due. Many believe that "ground zero" for the coming global debt meltdown will be in Europe. Unlike the U.S. and Japan, the nations of the EU can't just print more money to cover their debts. Nations such as Greece, Portugal and Italy must repay their debts in euros, and those nations are rapidly getting to the point where their debts are going to overwhelm them. Unfortunately, major banks all over Europe are very highly leveraged and are also very heavily invested in the sovereign debt of nations such as Greece, Portugal and Italy. If even one EU nation defaults it will start tipping over financial dominoes. If more than one EU nation defaults it could cause a cataclysmic wave of bank failures all over Europe. But Germany and the other more financially stable countries of the EU cannot bail out nations like Greece, Portugal and Italy indefinitely. Pouring money into Greece is like pouring money into a black hole. When you take money from financially stable countries and pour it into hopeless messes, you may stabilize things for a little while, but you also cause the financial condition of the financially...
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...Diplomacy Contemporary International Problems POL 300 March 4, 2012 The Reagan Doctrine was no different. Presupposing a world of evil and good, it operated on the theory that evil, was in the form of the USSR, and was getting the upper hand. To Reagan and his advisers, examples of Soviet treachery, including support for Marxist movements around the globe, were numerous; moreover, Soviet adventurism, from the Horn of Africa in the 1970s to Central America in the 1980s, showed no signs of lessening. Reagan was intent on stopping that trend—a trend, he believed, that President Carter had done little to reverse. Therefore, he adopted the vocabulary of the early Cold War, advocating policies equally aggressive and bold in range (Foreign Affairs). Reagan presented his vision at his State of the Union Address on February 6, 1985. "We must not break faith," he declared, "with those who are risking their lives—on every continent from Afghanistan to Nicaragua—to defy Soviet-supported aggression and secure rights which have been ours from birth." The president went on to compare anticommunist forces with American colonists who had fought the revolutionary war, relating those early patriots as "freedom fighters" for democracy. Providing aid to those groups was not only ethically just but geopolitically sensible. "Support for freedom fighters," Reagan declared, "is self-defense." It would be months before those declarations would take form as a permanent...
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...AT WHAT PRICE VICTORY The Intra-Contra scandal was a political scandal that took place during the second term of Ronald Reagan. The involved government officials facilitated the sale of arms to Iran with the hope of releasing the American hostages held in Lebanon by a group of Hezbollah terrorists. Ronal Reagan was in support of the cause though what initially began as a strategic opening to Iran was reduced to a trade of arms for hostages. The hostages was eventually reduced and it was not until 1986 that the word had gotten out about the secret transactions. The foreign policy of the Reagan administration resulted to The Soviet Union being brought down. Reagan depressed the value of Soviet commodities, hence intensifying economic pressure, he decreased soviet access to high technology and also diminished their resources. When Mikhail Gorbechev became leader, he reformed both political and economic factors, therefore easing the tension between the Soviet Union and the US. He agreed to withdraw most of the nuclear arsenals and troops to withdraw from Afghanistan and Reagan abandoned hi Strategic Defense Initiative plans. This reforms led to Soviet Union collapsing and disintegrated into individual states. This effectively ended the world war. Advantages that US draws for Reagan’s policies, is that the Soviet Union went down and the cold war also ended. The US military was also reformed and there was a massive build up. During this time, Americans feared that the Strategic Defense...
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...How Reaganomics Destroyed the Middle Class Reaganomics are the economic policies that were set and promoted in 1980s by the U.S. President Ronald Reagan. These policies are mainly connected to trickle-down economics. There are four pillars that are associated with the economic policy of Reagan and they include: reduce government economic regulation, reduce growth of how much the government spends, reduce the marginal tax rates such as capital gains tax and income tax and lastly reduce the level of inflation by controlling money supply growth. These four policies were expected to increase investment and savings, balance the U.S. budget, reduce inflation, increase the economic growth rate, restore healthy financial markets and reduce interest rates. However, instead of bringing benefit to the U.S. population and the economy, Reaganomics ended up destroying the middle class and America. This is because it led to uneven distribution of wealth, wage disparity, unregulated economic activity, increased deficits and low-end jobs. The following is an analysis of how Reaganomics negatively impacted the middle class and the Americans. Majority of Americans welcomed the idea that was presented to them by their President Ronald Regan in the 80s whereby he made a policy of cutting down taxes for corporations, businesses and the investors who are the rich in order to stimulate economic growth and to create jobs for the youths and the poor in the society (Chafe 110). American...
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...Running head: THE OVERRATED RONALD REAGAN The Overrated Ronald Reagan Kirston Gardner University of Phoenix Carole Lormand September 28, 2013 The Overrated Ronald Reagan Ronald Reagan, the nation’s 40th president is one of the most overrated men in history. Americans did not forget all the broken promises and dishonesty they dealt with while Reagan was in office. For many reasons he would be considered a good President but there are many more reasons that he would not. Reagan’s ratings were higher than the averages of his three immediate predecessors, Jimmy Carter, Gerald Ford, and Richard Nixon (Frank Newport, 2004). When rating Reagan, many factors show that he is indeed overrated, not only as a president but an individual as well. During Reagan’s term in office Americans faced recession, debt, high unemployment, questionable foreign policy and wasteful spending among other things. As Reagan was sworn, one of the first incidents, which were the release of the 51 hostages from the American Embassy in Tehran, occurred. It seemed as if the Iranians feared the win of future President Ronald Reagan. However, there were a few incidents that occurred prior to the inauguration of Reagan that actually set the stage for the emanate release of the hostages (United States History). The Shah of Iran died right before the presidential rae was over. Shah’s return, one of the requests in negotiations with the Iranians, was neutralized. The negotiations were now closer to closure...
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...rates, Reagan's approach to handling the economy marked a significant departure from that of many of his predecessor's Keynesian policies. 3 Before the tax cut, the economy was battling high inflation, high Interest rates, and high unemployment. These three issues dropped sharply after the tax cuts. The unemployment rate, which was at 9.7 percent in 1982, began a steady decline, reaching 7.0 percent by 1986 and 5.3 percent when President Reagan left office in January 1989. Inflation-adjusted revenue growth dramatically improved. Over the four years period before 1983, federal income tax revenue reduced at an average rate of 2.8 percent per year, and total government income tax revenue decreased at an annual rate of 2.6 percent. 4 In accordance with Reagan's less-government intervention views, many domestic government programs were cut or experienced periods of reduced funding during his presidency. Tax breaks and increased military spending resulted in an increase of the national budget deficit and led Reagan and Congress to approve two tax increases, aiming to preserve funding for Social Security, though not as high as the 1981 tax cuts. 5 The American economy went from a GDP growth of -0.3% in 1980 to 4.1% in 1988 (in constant 2005 dollars), averaging 7.91% annual growth in current dollars. 6 The proportion of total income taxes paid by the top 1 percent rose...
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...Ronald Reagan: Underrated, Overrated or Both Erica Boozer HIS/145 April 10, 2014 Tee Swan Ronald Reagan: Underrated, Overrated or Both Was President Reagan overrated or underrated? This is such a controversial question. Some believe he was overrated while others believe the latter. Ronald Wilson Reagan was the 40th president of the United States. Reagan was born in Tampico, Illinois on February 6, 1911. In 1920, after living in a series of towns as a child, Reagan family settled in Dixon, Illinois. Here his father opened a shoe store (biography, 2014). Reagan graduated high school in 1928 and continued his adult education at Eureka College in Illinois. Here, he was an athlete and scholar. He played football, ran track, and was captain of the swim team. He also acted in school plays and was president of the student council (biography, 2014). Reagan graduated in 1932 and in the latter part of the thirties he signed a seven year contract with Warner Brothers studio. He starred in over 50 movies during his time as a Hollywood actor (biography, 2014). Political Career Reagan started his political ventures in 1964. He gave a televised speech for Barry Goldwater who was a Republican presidential candidate at the time. Two years later he became the governor of California and was re-elected for a second term in 1970 (biography, 2014). After two failed bids for the Republican presidential nomination, Reagan finally made it in 1980 when he beat Democratic incumbent and current...
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...Ronald Reagan Ronald Reagan was the 40th president of the United States. Ronald Reagan lost the republican nomination to Gerald Ford in 1976. Reagan won the 1980 nomination and chose George H. W. Bush. Reagan and Bush ran against Jimmy Carter and Walter Mondale. He was so great people began to ask if there was enough room for another face on Mount Rushmore. In 1985, the Iran-Contra Affair supplied weapons to a sworn enemy. The transactions that took place in the Iran-Contra Scandal were contrary to the legislation of the Democratic-dominated Congress and contrary to official Reagan administration policy. In 1985 Iran and Iraq were at war, Iran made a secret request to buy weapons from the United States. The scandal was almost the undoing of the Teflon President. Despite the damage to Reagan’s image, the president got off very easily. President Reagan came to the White House promising a major shift to conservative economic policies. His program included a supply-side revolution, a scaling down of wasteful government activity, lower taxes and less interference with the market economy. As a result, it was expected, the US economy would become more efficient, with faster growth and minimal inflation. Tax reductions would pay for themselves so that the budget would soon return to balance. Financial expansion did help bring down unemployment, but the administration soon learned that tax cuts led to trade and budget deficits. Though early dreams remain unfulfilled, the Reagan period...
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