Economy Essay

1094 WordsOct 22, 20125 Pages
The Future of the Economy ECO203: Principles of Macroeconomics The Future of the Economy Economists generally agree that high budget deficits today will reduce the growth rate of the economy in the future because, high and persistent deficits will eventually drive up interest rates, dampen businesses confidence, and limit the flexibility needed to respond to future economic shocks. Our recent recession and the government’s aggressive fiscal stimulus packages have swollen the federal deficit to unprecedented proportions. We are almost at our deficit limit. It has been reported that our national deficit is well over 14 trillion dollars and it is rising higher every day. As William Gale and Alan Auerbach, two prominent fiscal experts, put it: “The future is now.”(The Economist, 2009a). One the reasons for the high budget deficit matters because, if we do not take the correct action we could spin our economy into an even worse situation. If the tax revenue is too low then we do not have enough revenue coming into the government to cover the current expenditures, which would lead to a budget deficit. It is like in any house hold if we spend too much then we will go into debit. In the case of the government if we spend to much it the government would have an expense that is not covered by current income and it would add to the budget deficit. It does matter whether the deficit is caused by lower taxes, increased defense spending, more job-training programs, and so on. The fiscal and monetary policies have a role in that they can lead to higher or lower budget deficits. This is dependent upon how they are used and why they are used. The fiscal policy determines the appropriate level of taxes and spending. The monetary policy manages they money supply. These tools are used by the government to manage the overall pace of our economy. They are

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