Impact of Budget Deficits

Impact of Budget Deficits

Impact of Budget Deficits

Impact of Budget Deficits:The short term effect associated with high federal government budget deficits is that it takes money out of circulation, the money can otherwise be available for offering credit to increase investment and productivity.

 

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There are ways to overcome the budget deficit where the president can borrow money to address the problem, because the cost will be paid by the later administration.  It is possible for individual to live high off the hog for a while in a situation where they don’t mind going into debt (Mitchell, 2005, p. 16). It is easy to persuade wishful thinking that debts don’t matter. In the 1970s, the US has a large wave of inflation that led to increasing in the interest rate because it rose to double digits.The government should apply policies and undertake projects that are below government income to reduce the budget deficit.

Reference

Laubach, T. (2009). New evidence on the interest rate effects of budget deficits and debt. Journal of the European Economic Association, 7(4), 858-885.

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