cyclical deficit

Examples of cyclical deficit in the following topics:

• Effect of a Government Budget Deficit on Investment and Equilibrium

  • The consequences of a budget deficit depend on the type of deficit .
  • A cyclical deficit is a deficit incurred due to the ups and downs of a business cycle.
  • The additional borrowing required at the low point of the cycle is the cyclical deficit.
  • By definition, the cyclical deficit will be entirely repaid by a cyclical surplus at the peak of the cycle.
  • Unlike the cyclical budget deficit, a structural deficit is the result of discretionary, not automatic, fiscal policy.

• Arguments for and Against Balancing the Budget

  • Balanced budgets, and the associated topic of budget deficits, are a contentious point within both academic economics and politics.
  • There is neither a budget deficit nor a budget surplus; in other words, "the accounts balance. " More generally, it refers to a budget with no deficit, but possibly with a surplus.
  • A cyclically balanced budget is a budget that is not necessarily balanced year-to-year, but is balanced over the economic cycle, running a surplus in boom years and running a deficit in lean years, with these offsetting over time .
  • In the US, every state other than Vermont has a version of a balanced budget amendment, which prohibits some deficits.
  • During recessions governments should run deficits.

• Problems of Long-Run Government Debt

  • Deficit spending during times of recession widely seen as a beneficial policy that can mitigate the effects of an economic downturn.
  • However, even Keynesians that support deficit spending during recessions advise that governments balance this deficit spending with surpluses during the eventual economic boom.
  • This is known as a cyclically balanced budget; the government runs a deficit during recessions and lean years but a surplus during periods of significant growth.
  • To offset the budgetary deficits and raise the necessary funds to pay down debt, governments will ultimately have to lower costs and raise taxes.
  • Since Congress is responsible for making budgetary, spending and taxation decisions, and because these elected officials may be disinclined to do anything that would hurt their chances to be re-elected, taking the necessary steps to balance out the periods of deficit spending during economic boom is difficult.

• Fiscal Policy and Policy Making

  • Even with no changes in spending or tax laws at all, cyclic fluctuations of the economy cause cyclic fluctuations of tax revenues and of some types of government spending, which alters the deficit situation; these are not considered to be policy changes.
  • Therefore, for purposes of the above definitions, "government spending" and "tax revenue" are normally replaced by "cyclically adjusted government spending" and "cyclically adjusted tax revenue".
  • Borrowing: A fiscal deficit is often funded by issuing bonds, like treasury bills or consols and gilt-edged securities.

• Expansionary Versus Contractionary Fiscal Policy

  • Keynes advocated counter-cyclical fiscal policies (policies that acted against the tide of the business cycle).
  • This means deficit spending and decreased taxes when an economy suffers from a recession and decreased government spending and higher taxes during boom times .
  • Keynesian economists advocate counter-cyclical fiscal policies.

• Fiscal Policy

  • However, these definitions can be misleading as, even with no changes in spending or tax laws at all, cyclic fluctuations of the economy cause cyclic fluctuations of tax revenues and of some types of government spending, altering the deficit situation; these are not considered to be policy changes.
  • A fiscal deficit is often funded by issuing bonds.
  • In theory, the resulting deficits would be paid for by an expanded economy during the boom that would follow; this was the reasoning behind the New Deal.
  • When the government runs a budget deficit, funds will need to come from public borrowing (government bonds), overseas borrowing, or monetizing the debt.
  • When governments fund a deficit with the issuing of government bonds, interest rates can increase across the market, because government borrowing creates higher demand for credit in the financial markets.

• Keynesian Theory

  • Fiscal Policy:The key concept in fiscal policy for Keynes is 'counter-cyclical' fiscal policy, which is the expectation that governments can reduce the negative effects of the natural business cycle.
  • This is, generally, achieved through deficit spending in recessions and suppression of inflation during boom times.

• Configurational Stereoisomers of Cycloalkanes

  • Stereoisomers are also observed in certain disubstituted (and higher substituted) cyclic compounds.
  • Four other examples of this kind of stereoisomerism in cyclic compounds are shown below.

• Depressive Disorders

  • The symptoms of DMDD resemble those of other childhood disorders, notably attention deficit hyperactivity disorder (ADHD), oppositional defiant disorder (ODD), and bipolar disorder in children.
  • Like PMS, premenstrual dysphoric disorder follows a predictable, cyclic pattern.

• The Balance of Trade

  • A positive balance is known as a trade surplus if it consists of exporting more than is imported; a negative balance is referred to as a trade deficit or, informally, a trade gap.
  • If (T-G) is negative, we have a budget deficit.
  • Assuming that the economy is at potential output (meaning Y is fixed), if the budget deficit increases and savings and investment remain the same, then net exports must fall, causing a trade deficit.
  • Thus, budget deficits and trade deficits go hand-in-hand .
  • The twin deficits hypothesis implies that as the budget deficit grows, net capital outflow from a country falls.