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 ...view middle of the document...
The spike in 2008 can be tied to the financial collapse and severe recession the economy encountered. At this point, the deficit needed to continue to help the economy grow out of the slump.
Here is the link to the Tables. 1.1 and 1.2 were the most insightful. 7.1 also gives the debt history and its comparison to GDP.
2. What are the potential consequences of a country having a large overall debt? If you were in the position to implement a solution for the country’s long-term debt, what would it be and why?
If a country has a large, long-term national debt, it faces a few problems. First, with a national debt, the government is eventually going to have to pay. The consequences for smaller nations have been dire: Greece, for example, had a massive national debt and devolved into riots and violence in recent years. However, civil unrest is not the only problem a country can face. A country could face the choice of whether to default on their debt, or face the choice of hamstringing their economy by raising taxes and cutting spending. If the country in question is large enough-- like the United States-- a large and increasing debt may lead to drastically-depreciating currency standards (Furth 2012).
One solution to the long-term debt crisis is to re-evaluate where and how the country spends its money. The United States has a massive military-industrial complex, and is ensnared in multiple armed conflicts around the globe. Re-evaluating the money spent on military would be a good first step to lessening the national debt. Another way to shrink the national debt would be to analyze tax brackets for the wealthiest individuals and the largest companies. Increasing taxes for the wealthiest individuals and corporations, even temporarily, is a way to alleviate the stress on an ailing eco4nomy and a struggling government.
Furth, S. (2012). What is National Debt? Understanding the Debt Crisis.Conservative Policy Research and Analysis. Retrieved February 6, 2013, from http://www.heritage.org/research/reports/2012/07/what-debt-crisis-a-default-primer-for-governments