...United States has operated under a budget deficit. A budget deficit is the amount of money which the government has to raise by borrowing or by emitting banknotes, also known as currency emission, in order to makeup for the shortfall in tax revenues. Due to spending more money than they have, the United States has racked up billions of dollars in national debt. The national debt is one of the most important public policy issues that America faces today. Ideally, national debt was meant to aid in the long-term growth and expansion of a country. However, because of continuous overspending, the United States is at risk of significant reductions in economic growth and high public debt. High public debt threatens to drive...
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... Jingze Yuan The government budget deficit is the difference between government revenue (mostly taxes) and government spending; the current account deficit is the difference between exports and imports (there are some adjustments for items such as funds sent abroad). Both deficits occur when someone is spending more than they earn; during the last 25 years the US government has tended to spend more than it collects in taxes and US residents have tended to spend more on imports than they export. A nation’s current account deficit reflects excess domestic spending. Equivalently, a current account deficit equals the excess of domestic investment over domestic savings. Regarding the Twin Deficit approach, Bernheim argues that if world capital markets are integrated and Ricardian equivalence does not hold, an increase in the budget deficit will almost certainly contribute to the current account deficit. A regression of the current account on the budget deficit (both scaled with GDP), while controlling for business cycle effects using growth and lagged growth gives a coefficient of 0.3 on the budget deficit in the case of the U.S. and similar figures for Canada, U.K. and Germany. Furthermore, tax smoothing implies a one-to-one relationship between the current account and the fiscal deficit. The underlying mechanism is that a constant tax rate induces the budget deficit to move one-to-one with public spending and therefore with the current account...
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...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;...
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... G REECE White Paper - Impact of Greece Crisis Global Research Limited Introduction Historically, financial crisis tend to lead to sharp economic downturns, low government revenues, widening government deficits, high levels of debt, pushing many governments into defaults. This is called SOVEREGIN DEBT CRISIS. GREECE is currently facing this, it accumulated high levels of debt during the decade before the crisis, when capital markets were highly liquid. As the crisis has unfolded and there was liquidity crunch in world economy, Greece may no longer be able to rol over its maturing debt obligations. Build – Up To The Current Crisis Between 2001-2008, Greece reported budget deficits averaged 5% per year, compared to Eurozone average of 2%. Also, its current account deficits averaged to 9% per year compared to Eurozone average of 1% Greece funded these twin deficits by borrowing in international capital markets, leaving it with chronically high external debt (115% of GDP in 2009) Some of the facts which can be depicted from following charts : www.capitalvia.com 2 White Paper - Impact of Greece Crisis G lobal Research Limited How Country Debts And Budget Deficits Compare? Projected budget deficit for 2009 Budget deficit figs as % of GDP Debt as % of GDP 68.6% UK 13% 112.6% Greece 12.5% 54.3% Spain 11.25% 65.8% Ireland 10.75% 114.6% Italy 5.3% 74.3% Germany 3.5% Source: European Commission /...
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...Monetary Union members use the Euro as the common currency, they do not have abilities to use independent monetary policy, the solution of this debt crisis which can influence the whole global financial system becomes to difficult to be found. Chart 1: How country debts and budget deficits compare [pic] Source: Eurostat Newsrelease Euroindicators 2010 According to the Chart 1 above, the debt of Italy is 115.8% of GDP and Greece (115.1% of GDP) is closely followed, while Ireland has the highest budget deficit of 14.3% of GDP and next is Greece (13.6% of GDP). However, the European Union member states were required to have 3% for the ratio of the actual government deficit to GDP as market prices and 60% for the ratio of government debt to GDP at market prices (Treaty on European Union, 1992). It is clear that all member states shown above broke the standard of Treaty on European Union and have excessive deficit and debt relate to the GDP. Government debt is defined as the government borrowing in order to satisfy the short-term liquidity needs or the longer-term budget capital expenditures (Edirisuriya, 2010). The government debt usually can be caused as an accumulated governmental deficit over several years or several decades. A large scale of debt, especially the sovereign debt, can cause rapid inflation which implied that a high price level of goods and a high level of unemployment, when an economy is running near or at its potential level of output. Therefore, the fiscal...
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...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...
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...sector consists only 3% of the national economic output. Greece has a high standard of living, its GDP per capita is about two-thirds of the largest European economies. Greece entered the eurozone in 2000, before 2009, Greece had 14 years of consecutive economic growth. However, since 2009 Greece has been experiencing a recession. The recession was caused from debt accumulating from government borrowing and spending, and not enough tax revenues. Since Greece is part of the Eurozone, it must abide by the European Union’s requirements such as, the government budget deficit cannot exceed 3% and the debt to GDP ratio cannot exceed 60%.Greece has had an inflation rate above 4% and budget deficit of 6-10% of GDP, with the highest being 15/7% in 2010. The debt to GDP of Greece exceed 60% in 2012, it was 70.3 higher. As a result, Greece has implement contractionary fiscal policies to help control its inflation and budget deficits. As the Greek economy undergoes an extended period of economic and political turmoil, bold and committed policy actions were critically needed to restore fiscal sustainability, enhance labor market flexibility, and tackle systemic corruption. As shown in the Greek debt comparison to Eurozone average graph, Greece’s debt is higher than the average in the Eurozone. Greece agreed for a €11.5 billion in spending cuts and a revenue increase of €2 billion from increased taxes. The use of contractionary fiscal policies, raising tax rates and cutting spending, has...
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...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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...a) Figure 1 shows the UK’s fiscal deficits between 2001/02 and 2013/14. In 2007-8, the UK’s fiscal deficit stood at around 2.3% of GDP however by 2009-10 the UK’s fiscal deficit was 12.4%. A fiscal deficit occurs when government expenditure is higher than revenue received from taxes. One reason for the fiscal deficit was the recession. During the recession many people lost their jobs so the government had to pay out more benefits whilst at the same time they received less tax revenue. The government also needed to spend to get its way out of the economy which again, lead to an increasing deficit. b) Public finances refer to the Public sector revenues and spending. The UK fiscal deficit is set to rise from £90bn in 2008-09 to £175bn in 2009-10. A deterioration in public finances either means a loss of tax revenues or an increase in government spending. One problem occurring due to a deterioration in the public finances for the UK is the increased cost of servicing national debt, which will inevitably increase if a deterioration of finances occurs. The national debt for the UK is expected to rise from around 38% of GDP in 2007-8 to 79% of GDP in 2013-14. A second problem occurring due to a deterioration in public finances for the UK is the need to cut costs. Extract 1 states the increase in public spending can only mean deep cuts in other government departments. Due to this, annual public spending will only be allowed to grow 0.7% in real terms for the five years...
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...BS1780 Macroeconomics for Business Problem Set 3 Group Assignment February 2016 1） Assuming that the nominal interest rate, the inflation rate, the real GDP growth and primary deficit remain constant for the next year, we can compute the projected next year end debt as a percentage of GDP by using the equation: dt+1=dt+i-πdt-grdt-st+1 In this case, dt is the public debt (as % of GDP) of 2011, which is 88%; i is the government interest rate 7% according to our assumption; π is the inflation rate, which was 2% if it is held constant constant in the next year; gr is -1%, the real GDP growth; and -st+1 is the primary deficit, which is 3%. Therefore: dt+1=88%+7%-2%×88%--1%×88%+3%=96.28% Thus, the projected next year-end debt (as % of GDP), based upon our assumptions, would be 96.28%. If we decompose the changes in debt-to-GDP ratio into three components, among the 8.28% of debt changes (as % of GDP), 4.4% is due to the real interest rate, 0.88% is coming from the growth, and primary deficit makes a contribution of 3%. The above calculation is shown in Table 1 below. Table 1: Debt to GDP ratio forecast | t=2012 | t=2013 | t=2014 | t=2015 | Inputs | | | | | Primary deficit (% of GDP) | 3 | 3 | 3 | 3 | Interest rate (money market, %) | 7 | 7 | 7 | 7 | Inflation (%) | 2 | 2 | 2 | 2 | Real GDP growth (%) | -1 | -1 | -1 | -1 | Public debt (% of GDP, end of t-1) | 88 | 96.28 | 105.06 | 90.66 | | | | | | Miscellaneous calculations...
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...CHAPTER 5: COUNTRY RISK ANALYSIS 53 CHAPTER 5 COUNTRY RISK ANALYSIS I moved this chapter from the section on foreign investment analysis to this section because I have concluded that the international economic environment is heavily dependent on the policies that individual countries pursue. Given the close linkage between a country’s economic policies and the degree of exchange risk, inflation risk, and interest rate risk that multinational companies and investors face, it is vital in studying and attempting to forecast those risks to understand their causes. Simply put, attempts to forecast exchange rates, inflation rates, or interest rates are helped immensely by a deeper understanding of how those economic parameters are affected by national policies. At the same time, no one can intelligently assess a country’s risk profile without comprehending its economic and political policies and how those policies are likely to affect the country’s prospects for economic growth. I spend some time discussing the nature of property rights and their implications for political risk and economic development. The chapter examines the experiences of Latin American countries and Eastern European countries and addresses the question of what it takes to promote economic growth. A good discussion of property rights and their effects on economic growth can be based on the end-of-chapter problems. This discussion serves to introduce the topic of country risk analysis–the assessment of the...
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...Fiscal Policy for Stabilization and Growth Sessions 11 & 12 Reading: Chapter 5 What is Demand Management? • Demand-constrained economy: – Increase aggregate demand to tackle recession/depression • Supply-constrained economy: – Manage demand to control demand-pull inflation 2 Policy focus: Demand-constrained Economy Aggregate demand K Potential output 3 Policy focus: Supply-constrained Economy Aggregate demand K Potential output Also: Long term – increase K to expand potential output 4 Recession/Depression • Recession: – Rule of thumb: two consecutive quarters of falling GDP • Depression: – “Severe” recession – no widely accepted definition: • Decline in real GDP that exceeds 10%, or one that lasts more than three years • Other alternative indicators: bursting of asset, credit bubble, fall in general price level 5 Examples of Depression (Using 10% GDP fall rule) 6 Economic Policy • Two main policy instruments to influence aggregate demand (C + I + G + X - M): – Fiscal Policy: • Through Government expenditure and revenue – Monetary policy: • Through Money supply and interest rates 7 Basic Logic of Demand Management (to ↑ demand) • Fiscal Policy: –↑G – ↓ income taxes to ↑ C – (Also: • ↑ tariff duties to reduce M • Provide incentives to ↑ X) • Monetary Policy: – ↓ rate of interest to ↑ C; ↑ I 8 Fiscal Policy and Demand Management in India 9 (see: http://indiabudget.nic.in) • • •...
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...decades prior to that in the Ministry of Finance, in the Government of India as well as in the Government of Andhra Pradesh. So it was a difficult choice for me as to whether I should give a fiscal view of the monetary policy or a monetary view of the fiscal policy. I have worked for a short period in the World Bank, which gives a global governments’ view and also in the IMF, which gives a global monetary authority’s view. As a via-media, I have opted to give a practitioner’s perspective of fiscal policy, and economic reforms. India’s fiscal situation: a brief prelude Broadly, during the first 30 years of independence, between 1950 and 1980, the fiscal deficits of both the central and the state governments were not excessive. This was a period of revenue surplus in general. However, automatic monetisation of government deficit by the RBI, which started as an exception during the...
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...MONICA M. WATERS HCS/310 - HEALTH CARE DELIVERY IN THE UNITED STATES UNIVERSITY OF PHOENIX PROFESSOR JOY KIEFFER The cost of health care in the United States goes way beyond the type of insurance a United States citizen utilizes. There are many other factors that contribute to the increase in cost. There are many citizens that are uninsured for the fact that they do not qualify for government insurance, can’t afford the insurance issued by their job, or can’t afford to get insurance on their own. Unfortunately, many go without being treated for life changing or life threatening illnesses, much less regular check-ups. This not only goes for medical attention, but dental, and vision as well. Many have to rely on their local emergency room when their “pain” becomes unbearable to get a temporary fix. They can’t be turned away based on the fact that they are uninsured or in financial distress and this adds to the national deficit. However, those that are insured are either utilizing self-pay insurance (for example: COBRA), employer group insurance, government insurance (for example: MEDICAID, MEDICARE), or they receive inmate care. These four insurance options are also contributing to the national deficit of health care costs as well. We will get in depth with discussing what government...
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...Introduction: The current article “IMF programs: Who is chosen and what are the effects?” by Robert J. Barro, Jong-Wha Lee talks about the lending policies and practices of IMF which responds to economic conditions but are also sensitive to political-economy variables. Paper says that all developing countries have received IMF financial support at least once since 1970 with few exceptions including Botswana, Iraq, Malaysia, and Kuwait (Robert J. Barro, Jong-Wha, 2005) but the real question is why so many countries are sorting out financial assistance from IMF? and are these loans are really helpful for their economy? It further explains the determination and effects of IMF program on the country’s economic growth because it invokes a controversy among the claim of IMF which is to contribute the sustainable growth in the economy of its member countries and the calculations made from the current data of 130 countries which show that a higher loan participation reduces the economic growth plus a little indirect effects on other economic and political variables like investment, inflation, government consumption, international openness, the rule of law and democracy(Robert J. Barro, Jong-Wha,2005) which will lead us to investigate the importance of institutional and geopolitical influences in IMF program, approval and participation. From the results of this research paper we can say that IMF lending may be bad for the economy but good for the governments and individual politicians...
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