deficit

Examples of deficit in the following topics:

• Effect of a Government Budget Deficit on Investment and Equilibrium

  • A positive balance is a surplus, and a negative balance is a deficit.
  • 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.
  • Unlike the cyclical budget deficit, a structural deficit is the result of discretionary, not automatic, fiscal policy.
  • Although deficits may have an expansionary effect, this is not the primary purpose of running a deficit.

• 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.
  • Balanced budgets, and the associated topic of budget deficits, are a contentious point within academic economics and within politics.
  • 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.

• Deficit Spending, the Public Debt, and Policy Making

  • Deficit spending and public debt are controversial issues within economic policy debates.
  • Deficit spending occurs when government spending exceeds tax receipts.
  • Governments usually issue bonds to match their deficits.
  • Deficit spending may, however, be consistent with public debt, remaining stable as a proportion of GDP, depending on the level of GDP growth.
  • Other deficit proposals related to spending or revenue tend to take money or benefits from one constituency and give it to others, a "win-lose" scenario.

• 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.

• Financing Balance-of-Payments Deficits and Surpluses

  • Surpluses are easier to finance than the deficits.
  • Some call a "deficit with tears" because a central bank or government must use its resources to finance it.
  • Government or central bank allows the exchange rate to correct any surpluses or deficits.
  • Unfortunately, the trade deficit initially worsens before improving.
  • For instance, a country is experiencing a balance-of-payments deficit.

• Gridlock in Government

  • Early in his term, Bush faced the problem of what to do with leftover deficits spawned by the Reagan years.
  • Reagan’s policies of cutting taxes and increasing defense spending in relation to the Cold War had exploded the federal budget deficit, making it three times larger in 1989 than when Reagan took office in 1980.
  • The deficit had reached a high of $220 billion in 1990.
  • Bush was dedicated to curbing the deficit, believing that America could not continue to be a leader in the world without doing so.
  • Angered Republican congressmen defeated Bush's proposal which would enact spending cuts and tax increases that would reduce the deficit by $500 billion over five years.

• 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.

• Chapter Questions

  • If a country has a fixed rate regime and experiences a balance-of-payments deficit, please explain how the country must maintain this exchange rate.
  • Many foreign investors are worried over the U.S. government's large trillion-dollar deficits, and the U.S. economy is plagued by massive trade deficits.

• Does U.S. Treasury Affect the Monetary Base?

  • Government finances budget deficits in three ways.
  • Could the U.S. federal government affect the monetary base by financing budget deficits?
  • Treasury finances a budget deficit by selling T-bills.
  • Treasury finance budget deficits.
  • However, the Fed can finance budget deficits indirectly.

• The U.S. Trade Deficit

  • At the end of the 20th century, a growing trade deficit contributed to American ambivalence about trade liberalization.
  • An even bigger factor leading to the ballooning U.S. trade deficit, however, was a sharp rise in the value of the dollar.
  • By 1987, the American trade deficit had swelled to $153,300 million.
  • But the American trade deficit swelled again in the late 1990s.
  • By 1997, the American trade deficit $110,000 million, and it was heading higher.