Examples of cyclical deficit in the following topics:
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- It is often impacted by persistent cyclical unemployment.
- Cyclical unemployment is a type of unemployment that occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work.
- With cyclical unemployment the number of unemployed workers is greater that the number of job vacancies.
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- There are three reasons for unemployment which are categorizes as frictional, structural, and cyclical unemployment.
- During periods in the business cycle when the economy is producing below its long-run, optimum level, firms demand fewer workers and the result is cyclical unemployment.
- The short-term fluctuations in the graph are the result of cyclical unemployment that changes when economic activity is above or below its long-term potential.
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- Like the financial account, a deficit in the capital account means that money is flowing out of a country and the country is accumulating foreign assets.
- For example, if a domestic company acquires the rights to mineral resources in a foreign country, there is an outflow of money and the domestic country acquires an asset, creating a capital account deficit .
- For example, if the domestic country forgives a loan made to a foreign country, this transfer creates a deficit in the capital account.
- Thus, the balance of the capital account is calculated as the sum of the surpluses or deficits of net non-produced, non-financial assets, and net capital transfers.
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- 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.