Budget Deficits and the Economic Growth - 1943 Words

Budget Deficits and Economic Growth Joey Willoughby ECO 203 Principles of Macroeconomics Instructor: Nathan Rondeau 6/27/2011 Budget Deficits and Economic Growth Economists generally agree that high budget deficits today will result in the reduction of the growth rate of the economy in the future. The United States budgetary situation has disintegrated significantly since 2001, when the CBO ( Congressional Budget Office ) forecast average annual surpluses of nearly $850 billion from 2009 – 2012. In April of 2011, it was revealed that our nation is 12.7 trillion dollars in debt which surpasses by a wide margin, the 2001 CBO forecast of a cumulative surplus by†¦show more content†¦Unless the deficit spending is allotted to purchases resulting in long – term increases in real GDP, future generations will have to endure taxation at an elevated rate. This is the only way that the government entity will be capable of retiring the elevated public debt which has resulted from this generation’s consumption of goods, provided governmentally. Added to this dilemma, the increased level of consumption by this same gener ation crowds out investment, thus a reduction of capital goods growth is apparent, leaving future generations with insignificant capital stock and a drastic reduction of their wealth. ( time.com) In relation to our foreign debt, future generations may be taxed to repay this exorbitant debt plus aggregated interest however this does not have to be â€Å"etched in stone.† It all depends entirely on the projects that the government funds in the future. If these projects are of a wasteful nature our future generations may face yet another added burden. This would also stymie the growth rate of the economy in the future. The deficit must be maintained to ensure that the nation’s economy grows with its resource position. Our nation must do everything in its power to reduce the deficit. Economic growth is also further impaired by government borrowing, which essentially is competing for money against the private sector. The continuance of government borrowing is denying the U. S.Show MoreRelatedPublic Budget Deficit Has Generated Pressures On Domestic Savings Essay1391 Words   |  6 PagesThis chronic and growing public budget deficit has generated pressures on domestic savings and increased the share of domestic savings that directed to cover the growing public deficit at the expense of investment spending share. Ratios of public budget deficit to demand for domestic savings fluctuated around upward sloping trend. This ratio recorded 40%, in average, with standard deviation 14.5% during the considered period. 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