Federal Budget Deficit Essay Example | Topics and Well Written Essays - 1250 words

Federal Budget Deficit - probe ExampleThis paper intends to discuss the significance, causes and recommendations attributed to the federal official budget deficit. The federal budget deficit is significant in a number of ways. This may be either short term or long term. For instance, in a slack economy, the major final result of an increase in the deficit is stimulation of demand and result raise of output (The Moment of Truth, 22). It is significant to note that, as the economy approaches full employment and alter of the credit markets, the federal government acquire tends to push up the interest rates. In the same regard, higher(prenominal) interest rates influence the cost of financing new investment in plant and equipment. to a greater extent over, the federal deficit causes higher interest rates influence international capital flows and consequent effect on trade balance. In addition, the deficit causes increase in the exchange value of the dollar speci completelyy the pri ce of the imported products falls. The deficit also increase the sizing of the national debt consequently increase of the size of the annual interest payments make on the debt. On the other and, it should be noted that not all times the deficits pose disadvantages to the populace. Running temporary deficits especially during a recession economy a federal government can enhance a weak economy and cushion the effects of the downturn on Americans. Some of the causes of the budget deficit include measure cuts. According to the experts, the evaluate cuts pay for themselves. This implies that, the economy expands promptly because of the levy cuts, which produce more or less the same level of revenue, as it would have in the absence of tax cuts. This study observes that if the costs of extending the management of the tax cuts are not compensated by expenditure reductions, extending the tax cuts would somewhat decrease long-run economic expansion (The Moment of Truth, 24). On the same regard, increased internal spending in various sectors of economy such as education, Medicare, defense (homeland security) and infrastructure is immensely attributed to the afoot(predicate) budget deficit. For instance between 2001 and 2006, the federal budget on domestic spending account for almost 26%. It is imperative to note that, even if the overheads of extending the tax cuts are compensated by expenditure cuts, the tax cuts would at preeminent have only small positive consequences on the economy. More over, todays deficit is observed to have been caused by the 2001 economic downturn. The budget deficits can be reduced by cutting down expenditure on domestic spending. For instance, reduced spending on domestic programs done 2011 saw a total of $75 billion saved. In addition, tax cuts should be regulated to a lower level and more significant, strategies on reduced tax cut administration costs should structure to ensure reduced expenditure during this exercise (The Moment of Truth, 22). This study finds out that the federal government borrowing tends to push up the interest rates, which are settled by the deficits. It is imperative to note that, deficits of such physical body can be reduced by reducing government borrowing intended for the recurrent expenditure. However, this top executive not serve as a permanent solution in a slowly regain economy attributed with the countrys medium and long term fiscal challenges. It is significant to note that, this is a tight economic situation, which requires stringent