Purchase Solution

The main impact of the deficit spending

Not what you're looking for?

Ask Custom Question

Assume the U.S. is in the midst of a recession and a new president has just inherited an already large public debt. As a top economic advisor to the new president, you are asked to explain the trade-off between the short-run and long-run objectives of using deficit spending to pull the country out of the slump. Make your case.

Explain how tax credit to a business would help to stimulate the economy?

Are CEO's in the U.S. paid too much? Support your answer?

Is the U.S. investing enough in its human capital to remain globally competitive? Support your answer

Purchase this Solution
Solution Summary

This solution helps explore the main impact of the deficit spending.

Solution Preview

Answer:
Assume the U.S. is in the midst of a recession and a new president has just inherited an already large public debt. As a top economic advisor to the new president, you are asked to explain the trade-off between the short-run and long-run objectives of using deficit spending to pull the country out of the slump. Make your case.
The main impact of the deficit spending can be determined based on two factors one is the slope of aggregate supply curve and the extent to which deficit spending shifts the aggregate demand curve. When the real output falls below its potential then in this situation unemployment in the economy increases. Then in this situation government increases the deficit spending to create a sufficient demand for goods and services in the economy and this in turn creates employment for short run. So, deficit spending makes sense in the short run by improving employment prospects without affecting long run living standards. This ...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
Recent Feedback
  • "I've posted a similar question for another course. It's post 657940, and it's a practice problem that I'd like to use for the final exam. Your help will be greatly appreciated. "
  • "thank you!"
  • "Thank you again Jayant. You are super fast. "
  • "Thank you Jayant. You are appreciated. "
  • "Again, thank you Jayant. You are wonderful. "
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts

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

Elementary Microeconomics

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

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.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

View More Free Quizzes
Related BrainMass Solutions

  • The main problems associated with fiscal policy

    The main problems associated with fiscal policy are all dependent on either the assumptions of the models or practical difficulties in measuring the state of the economy. Some of the most important ones are: 1.

  • Airline Economy Evaluation

    Impact of Budget Deficit on US Economy - The budget deficit in US is increasing continuously and in 2009 it is at record level that was $1.75 trillion. Total spending were $3.94 trillion while the revenue were only $2.18 trillion.

  • Steps to Handle an Economic Recession

    A way to mitigate or offset the deficit is to separate the cyclical and structural components of the deficit is to estimate the deficit in the event of the economy in a full employment situation.

  • effects of the changes in fiscal policy

    The main objectives of the fiscal policy are: 1. Mobilization of resources 2. Acceleration of the economic growth 3. To minimize the inequalities of Income and Wealth. There are three main constituents of the fiscal policy, these are: 1.

  • Political Agenda's Impact on the Federal Budget

    582058 Political Agenda's Impact on the Federal Budget Explain and take a position on at least two indications from the U.S. Federal Deficit Chart and the 2012 U.S. Budget used for determining the political nature of budgets.

  • Impact of Changes in MPC on Equilibrium GDP

    Examines how changes in MPC change the impact of deficit spending. Also examines how tax changes have a different impact from deficit spending.

  • Fiscal actions that impact the federal budget

    Propose two actions if the budget is in deficit to bring it out of deficit. What would be the impact on the U.S. economy for each of your recommendations?"

  • The multiplier

    The size of the multiplier depends on the slope of the aggregate expenditure curve. 7.) If the Multiplier is 5, what is the impact on GDP in this illustration if government spending (G) increase by $10 billion?

  • fiscal policy

    What is the final impact of contractionary fiscal policy on the price-level and real output? 2. What is the final impact of expansionary fiscal policy on the price-level and real output? 3.

View More Related Solutions