2019-01-21T11:16:32+00:00 Assignments

Topic: Describe Deficit Spending Advantages - Research Paper

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Topic: Describe Deficit Spending Advantages - Research Paper

Instructions:

During the Great Recession, like any other economic downturns, as unemployment rises, aggregate income declines causing a major decline in tax collections. On the other hand, with the rise in unemployment, spending on safety net programs rise. So, there are not too many good options available to resort the health of the national economy. It will be very difficult to defend cuts in the federal government programs and especially the programs geared to sustain the minimum of the standard of living for the recent “poor.” So, government needs to increase its borrowing. Deficit spending refers to government spending exceeding what it brings in federal income and corporate taxes during a certain period. Deficit spending hence increases government debt. Most economists accept that deficit spending is desirable and necessary as part of countercyclical fiscal policy. In such a case, government increases its borrowing and hence its deficit to compensate for the shortfall in aggregate demand. This is derived from Keynesian economics, and has been the mainstream economics view. Following John Maynard Keynes, many economists recommend deficit spending to moderate or end a recession, especially a severe one. When the economy has high unemployment, an increase in government purchases creates a market for business output, creating income and encouraging increases in consumer spending, which creates further increases in the demand for business output. (This is the multiplier effect). This raises the real gross domestic product (GDP) and the level of employment and lowers the unemployment rate. Government borrowing under such circumstances increases the demand for borrowing and thus pushes interest rates up. Rising interest rates can "crowd out" (discourage) fixed private investment spending, canceling out some of the demand stimulus arising from the deficit Write an essay analyzing the advantages and disadvantages of deficit spending and the effects of federal government borrowing on the economy i.e., the “crowding out” effect. Your paper should be structured as follows 1. Cover page with a running head 2. Introduction: What is deficit spending and how does it work. 2.1. Advantages 2.2. Disadvantages 3. Crowding-out Effect 4. Conclusions: Do you believe that deficit spending helps or hinders short-term and long-term economic growth? 5. References

Content:

Deficit Spending Institution: Course: Date: Deficit Spending Introduction Deficit spending is a condition where individual, company or even a state do not have adequate financial resources to cater for their needs and development agendas and hence look for external sources to facilitate them. In the 21st century, deficit spending is common in many developing countries as they have limited resources compared to the huge fiscal projects they need to undertake. Large governments also engage in huge borrowing which makes the interests rates to rise. Internal and external borrowing, leasing of government properties, issuance of bonds in open market operations and selling privatization of government parastatals are among many sources of external funding CITATION Rai13 l 1033 (Schultze & Dagmar, 2013). Deficit spending is a double sided sword as it has both advantages and disadvantages as discussed below in this article. Advantages Firstly, deficit spending leads to increased economic growth. Many governments in the world today engage in huge borrowing to finance their huge projects. These projects include construction of roads, railways, airports, equipping of hospitals and building of training institution CITATION Mar13 l 1033 (Bull & Rhodes, 2013). These projects make the country grow economically because these projects create jobs for a large group

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