|Type of paper:||Essay|
|Categories:||Political science Government Budgeting Debt|
The level of the national debt in the united states of America is usually measured by how much the government owes its creditors. The government spending is generally higher than its income thus resulting in national debt be on the increase. This paper will provide different theoretical views on the national debt, long-run costs of high national debt also the costs of eliminating the budget deficit solely through the use of the increase in personal tax and through spending cut by the decrease in transfer payments that is social security, Medicare and Medicaid plus discretionary spending.
The government plays a vital role in the economy, it has the purpose of improving the economy of the country, and through these, it is faced with strengths and weaknesses. There are different strategies that the government uses in bringing economic stability, and there are various ways which are adopted by the government to bring about the durability. Some observations have been made that the government can be jeopardizing the economy of the country through the activities that it partakes. One of these is what is referred to as deficit spending.
Deficit spending refers to a phenomenon where the government expenditures are higher than the revenue it generates, thus deepening the deficit. Deficit spending is not a good idea for any economy.C combined advantages and disadvantage usually give a different shape to the economy of a particular state. The negative element of deficit spending is that the government will be required to finance this deficit through borrowing, for instance, form other states and foreign governments. This borrowing ought to result in total dues, and instead of causing a reduction in the debt, it will widen the deficit.
The various advantages of deficit spending of the government can be addressed from different perspectives . For instance, from the economic growth perspective, it can be observed that whenever the expenditures of the government are excess, it is in the position of buying infrastructure for the country. Thus the economic growth of the country is added. Hence there is the creation of employment opportunities and more chances of development of the economy as a result of the government using deficit spending. Additionally, during the period of recess, the excessive inflow of money from the borrowing of foreign currencies can increase businesses, private investment ventures will be increased and will always result in development and growth of the economy of the country (Eaton & Gersovitz, 1981). Similarly, deficit spending gives the government the mandate of making the economic decision; budget deficit always occurs as a result of deficit spending. Whenever the government is working on the budget deficit, it gives assurance to the departments of the government to rethink before making investments that are unnecessary hence resulting in making decisions that are proper to the government and the entire economy this is an excellent source of economic prosperity.
There are various long-run costs of high national debts, specifically when the debt is more senior and increasing. The significant costs are accredited to its macroeconomic effects. One of the typical long-run cost is that high level of national dues results in drawing of money from investments and private sectors, specifically capital that is productive (Modigliani, 1961). Another cost is the rise in the spending of the government in the repayment interest. This would need the government's tax to be increased and reduction in the expenditure on the services of the public and the benefits.
There are various costs of eliminating the deficit of the budget through an increase in personal tax also through spending cut by decreased transfer payments, for instance, social security, Medicare, and Medicaid even discretionary spending. Deflation of the economy usually occurs whenever the government tries to eliminate budget deficit through increasing personal taxes. This deflation of the economy would result in lower economic growth in higher unemployment rates. If the government decides to reduce the spending through decreasing payments transfer, it will lead to a reduction in aggregated demand in the economy. Services such as Medicare, Medicaid, and social security and other essential services would not be accessed by the citizens (Hovey, 1999). The government will experience lower impact on productivity if it decides to cut spending on services that are required by the people such as social security. However, there ought to be reduced economic growth and a low level of inflation.
Discretionary spending is vital because it has a long run impact. The necessary government investments include education and defense and a reduction in the expenditure on such services ought to result in a negative effect on economic growth because of the decrease in productivity in the long run. In conclusion, the process of spending deficit by the government should not be given feasibility consideration since it prevents short term and long term economic development. Deficit spending has advantages of events and economic growth. Deficit spending results in an increase in debt, an increase in foreign spending, taxation rates, and the system of taxation. The implications that deficit spending poses are of negative economic development.
Eaton, J., & Gersovitz, M., (1981). Debt with potential repudiation: Theoretical and empirical analysis. The Review of Economic Studies, 48(2), 289-309.Retrieved from https://www.jstor.org/stable/2296886
Modigliani, F., (1961). Long-run implications of alternative fiscal policies and the burden of the national debt. The Economic Journal, 71(284), 730-755.Retrieved from https://www.jstor.org/stable/2228247
Hovey, H. A., (1999). State spending for higher education in the next decade: The battle to sustain current support. Retrieved from https://eric.ed.gov/?id=ED439633
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