Economics Paper on Impact of Federal Budget Deficit on Public

Impact of Federal Budget Deficit on Public

The expression ‘federal deficit’ refers to government spending, especially where the government spending exceeds its total income. In America, the outstanding debt owed by the federal government is approximated at more than $20.1 trillion. The federal budget deficit has various effects on the public. In the short run, for instance, it benefits the public as government is able to purchase defense equipment, health care facilities, and hire new employees. However, in the long run, the deficit increases the GDP-debt ratio as creditors can demand high interest payments as the accrued interest continues to increase. This increases taxation of the public in order for the government to be able to pay for its federal deficit. It also reduces development in the long run as more funds are allocated to settling the deficits. The public further suffers from high interest rates on loans as the Central Bank increases the interest on money borrowed by banks. Thus, money circulation and flow reduces, thereby prompting the public’s purchasing power to reduce.

Ways to Reduce Federal Deficit

In the recent times, various mechanisms have been undertaken in the United States to reduce federal deficits. Policies introduced by President Donald Trump is to augment investment on infrastructure and defense and to reduce the tax are very significant in bringing down the federal deficit.  Ending tax breaks and subsidies for oil, gas, and coal mining companies and establishing progressive estate tax are   some other strategies that could be adopted towards reducing the deficit.

Question 2

Through the law of absolute and comparative advantage, two countries can gain and trade even when one country is more efficient than the other in production of every commodity. In that, one country can be efficient in producing the raw materials while the other has the efficiency of producing the commodity. As a result, the two countries can trade whereby one supplies the raw material for production while the other produces the commodity required.