Economics Assignment - Budget Deficits, Public Services, and Debt

Verified

Added on  2023/04/23

|4
|393
|96
Homework Assignment
AI Summary
This economics assignment examines budget deficits and their impact on various aspects of the economy. The assignment addresses the reasons behind countries running deficits, such as financing public services, war, and recessions. It discusses the benefits of deficits, including increased demand and economic growth, as well as the use of deficits as automatic stabilizers and for financing public sector investments. However, the assignment also highlights the potential problems associated with budget deficits, such as increased national debt, higher debt interest payments, and potential inflation. Furthermore, the assignment explores the effects of reduced government spending, which can lead to slower economic growth and lower revenue. The assignment also defines budget deficit as the annual shortfall between government spending and tax revenue, and explains how this deficit is financed through the sale of government bonds to the private sector. The assignment refers to the work of Azzimonti, Battaglini, Coate (2016) and Stiglitz and Rosengard (2015).
Document Page
0
Running head: ECONOMIC ASSIGNMENT
Economics assignment
Name of the student
Name of the university
Author note
tabler-icon-diamond-filled.svg

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
ECONOMIC ASSIGNMENT
Table of Contents
Answer 2....................................................................................................................................2
Answer 3....................................................................................................................................2
Answer 4....................................................................................................................................2
Answer 5....................................................................................................................................2
Reference list..............................................................................................................................3
Document Page
ECONOMIC ASSIGNMENT
Answer 2
Countries usually run into deficits in order to finance investment for Public Services,
war, during recessions and also during political pressures. The country may run in to
financing the investment in public services. Also, in case of war, the government need to
finance and at that time the country might run into deficit.
Answer 3
The deficit can be good when it will lead to increased demand or economic growth,
can make use of the excess saving in times of recession (Azzimonti, Battaglini and Coate
2016). Deficits are also termed to be good when they will be used as automatic stabilizers and
also for financing public sector investment. However there are problems in case of budget
deficit where it leads to increase in the national debt, increase in the debt interest payments. It
might also result in higher bond yields, potential inflation rise in future tax spending.
Answer 4
When the government stops spending more, the economic growth will be slow. The
cut in the government spending will lead to lower revenue and will also have a huge amount
of deficit. Budget deficit will lead to increase in the national debt, high debt interest
payments.
Answer 5
Budget deficit can be ter4med as the annual shortfall present between the government
spending and tax revenue. The deficit is known as the annual amount which the government
needs to borrow (Stiglitz and Rosengard 2015). The deficit will get funded by selling the
government bonds to the private sector.
Document Page
ECONOMIC ASSIGNMENT
Reference list
Azzimonti, M., Battaglini, M. and Coate, S., 2016. The costs and benefits of balanced budget
rules: Lessons from a political economy model of fiscal policy. Journal of Public Economics,
136, pp.45-61.
Stiglitz, J.E. and Rosengard, J.K., 2015. Economics of the public sector: Fourth international
student edition. WW Norton & Company.
chevron_up_icon
1 out of 4
circle_padding
hide_on_mobile
zoom_out_icon
[object Object]