Purchase Solution

Discussing Government Budget Deficit & Unions

Not what you're looking for?

Ask Custom Question

1. What is a government budget deficit? How does a federal budget deficit affect the economy? How does it affect the level of investment and interest rates? How does it affect the individual consumer? Give at least three examples in your response.

2. Are unions good or bad for the economy? How do unions at GM and Ford affect employment levels and wages? How do unions affect other industries in terms of employment and wage levels?

Purchase this Solution
Solution Preview

1. Whenever the government spends more than it takes in through taxation, it runs a deficit. In general, the economy does better when there is a deficit. Avoiding one generally means increasing taxes, which causes a decline in spending and therefore GDP. However, when deficits occur year after year, they accumulate into a debt that can cause problems.

In terms of investment, government debt may "crowd out" private investment. This occurs through higher interest rates. For example, if current interest rates are 5% and the government needs to sell bonds it will offer a higher rate in order to make them appealing. This may drive up interest rates to 5.5%. Private companies may not be able to afford to pay this interest on their debt, so would put off making capital improvements. Thus the government can reduce the level of investment by private firms in this way.

In addition, higher interest rates would attract foreign investment, and cause the domestic currency to increase in value relative to foreign currency. For example, if the exchange rate were $2 to one Euro dollar, and the demand ...

Purchase this Solution
Free BrainMass Quizzes
Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

View More Free Quizzes
Related BrainMass Solutions

  • 8 General Economics Questions

    What is a government budget deficit? How does a federal budget deficit affect the economy? How does it affect the level of investment and interest rates? How does it affect the individual consumer?

  • Effects of a government budget deficit

    What is a government budget deficit? How does a federal budget deficit affect the economy? How does it affect the level of investment and interest rates? How does it affect the individual consumer?

  • Budget Emergency and Debt Cycle

    560180 Budget Emergency and Debt Cycle I need help discussing and responding to two articles attached: 1. Refers to the article: "YES, MR ABBOTT, THERE IS A BUDGET EMERGENCY" (attached). What is a "budget emergency"?

  • Deficits and Surpluses

    NOMINAL AND REAL DEFICITS AND SURPLUSES Another distinction that economists make when discussing the budget deficit and surplus picture is the real/nominal distinction.

  • Trade deficit vs. Budget deficit

    A budget deficit is when government spending is greater than government revenue (i.e. taxes) and government funds its expenditures through bonds (treasure bills), that creates a liability which the government has to return years later.

  • Challenges for America: The Ever-Increasing Budget Deficit

    512935 Challenges for America: The Ever-Increasing Budget Deficit Budget Deficit, National Debt, and Government Spending: Is Now the Right Time to Cut Deficit and Reduce National Debt?

  • Forecast for 2010 Federal Budget Deficit

    350 words Research what is the FORECAST for the Federal Budget Deficit for fiscal year 2010. What are the economic implications of the Government running a deficit year after year?

  • Federal Budget Deficit

    This is one factor that will reduce the federal government budget deficit by a huge amount.

  • Airline Economy Evaluation

    The budget deficit causes a decrease in the saving and consumer spending as a large portion of income is taken by the government to eliminate the budget deficit or to fulfill the required finance for government spending.

View More Related Solutions