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Macroeconomics Essay: Deficit Spending (Example)

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Deficit Spending Student’s Name Institutional Affiliation Deficit Spending Deficit spending is a standard feature in most economies both developed and developing as it forms the basis of the economic orientation of such countries. Most states have adopted this kind of design to drive their development agenda as the challenges they experience as a country veteran economists from the Keynesian school of thought vouch for such an orientation. The inadequacies of most nations concerning the desire to establish a high standard of living for their citizens employ the deficit spending model to achieve sanity and sustainability of their economic framework. Deficit spending is defined as a situation where countries or organizations revenue are not adequate to fund the budgets on the administration and development of such entities. Deficit spending is when governments for instance resort prospects of any nation provided it is applied in well thought out plan. The deficit spending framework should entail the acknowledgment of all the other features that influence the deficit spending to ensure an elaborate tool that will inspire exponential economic growth. Economic growth is attainable by deficit spending provided the government economists lay down efficient structures in place that will ensure the adverse effects of deficit spending are taken care of for the overall growth of the economy and Gross Domestic Product. References Caraway  J. P. & Army War College (U.S.). (2010). Addressing the United States debt and deficit. Carlisle Barracks PA: U.S. Army War College. Shen  W. Yang  S. -C. & International Monetary Fund. (2012). The effects of government spending under limited capital mobility. Washington D.C.: International Monetary Fund. Young  M. (2009). Government spending. Detroit: Greenhaven Press. [...]

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Assignment 1: Deficit Spending 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. Complete this essay in a Microsoft Word document, and in APA format. Note your submission will automatically be submitted through "TurnItIn" for plagiarism review. Please note that a minimum of 700 words for your essay is required. 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

Subject Area: Economics

Document Type: Reports

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