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ECON102 Assignment 1: Deficit Spending

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Question;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, APA formatted and then submits;it to "TurnItIn" for plagiarism review. Please note that a minimum of;500 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

 

Paper#58056 | Written in 18-Jul-2015

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