A)The federal government recently ran a budget surplus, but has since returned t
ID: 1097095 • Letter: A
Question
A)The federal government recently ran a budget surplus, but has since returned to running a budget deficit.
Explain why reducing the budget deficit can cause short-term pain in the form of lower employment, higher unemployment, and a recession.
Explain why expansionary monetary policy would help decrease the likelihood of a recession if it were adopted at the same time the budget deficit was being reduced.
Present an analysis that identifies any long term gains which could result from a reduction in the budget deficit. (Analyze the composition of output.)
PLEASE HELP ME! It's my final study guide.
Explanation / Answer
When the government runs a budget deficit it will definitley cause higher unemployment and recession since the the amount of budgert allocated for each industry will come down and all the organizations will only be aimed at adopting cost cutting technologies. Hence the rate of recruitment and options for new employment will be very less. If the government runs on high deficits then it might definitely affect the economy and the global market presence of the country.
The expansionary market policy will defnitely reduce the rate of recession since the economy will start having cash flow which will be reflected in all industries. When the economy starts to stabilize there is a chance for higher employment from the industries. So the reduction in budget deficit will not affect the economy so badly as there is a couter action in progress. Expansionary monetary policy will balance the effects caused by the reduction in budget deficit.
Long term gains that might result from reduction of budget deficit are as follows:
1. The over all economy will tend to get stabilized in the long run.
2. The country's credit in the world bank will be under control.
3. The country exports will be increased and imports will be reduced.
4. Many foreign countries will tend to start companies in the country leading to higher employment opportunities.