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Budget deficit versus the GDP

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Consider the annual budget deficit in the United States versus GDP: How does this compare to other industrial economies? What is your opinion on this relationship of the budget deficit to GDP?

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Solution Summary

The following problem helps with a problem regarding international economies. It discusses the budget deficit in the United States.

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Governments don't have pay back debts the way individuals do. The Treasury Department can, in fact, issue new bonds to pay off the old ones. This is not a problem as long as investors are willing to hold U.S. Treasury bonds. These bonds are actually very popular due to their liquidity, low risk, and certain tax advantages. Compared to other nations, the debt-to-GDP ratio for the U.S. is relatively modest. Budget deficits in France and Germany are just as large as in the U.S., and the budget gap in Japan is twice as large. But these countries have a current account surplus, unlike the US whose current account deficit is now ...

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