Outlook for the Future: Difference between revisions

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{{Budget Guide}}
{{Budget Guide}}
Federal deficits reduce the future standard of lining by lowering national saving which slows the accumulation of national wealth.  Increases in government spending (increased government consumption) and federal tax cuts (increased public consumption) increase the federal deficit and reduce national saving.  Even if the financial market (i.e. interest rates) is not significantly affected by the shifting of resources from from saving to consumption, decreased national saving can still occur.  Although domestic investment is reduced by federal deficits, captial inflows from abroad tend to increase the productivity or both labor and capital.


=Effects of Rising Debt on the Economy=
=Effects of Rising Debt on the Economy=


Federal deficits reduce the future standard of lining by lowering national saving which slows the accumulation of national wealth.  Increases in government spending (increased government consumption) and federal tax cuts (increased public consumption) increase the federal deficit and reduce national saving.  Even if the financial market (i.e. interest rates) is not significantly affected by the shifting of resources from from saving to consumption, decreased national saving can still occur.  Although domestic investment is reduced by federal deficits, captial inflows from abroad tend to increase the productivity or both labor and capital.
*decrease national savings and reduce investment in domestic capital stock and foreign assets
**decline in the growth of workers' productivity would decline and real wages
***tapering off of economic growth, leading to a sustained contraction of the economy
**some portion of the deficit could be financed by foreign investors
***over time:
****foreign investors would own larger shares of US output, leaving fewer resources available for domestic consumption
****financing of the deficit by foreign investors could decline
****the exchange value of the US dollar could plummet
****interest rates could soar
****consumer prices could climb
****the economy could contract abrubtly
****stock markets could collapse
****the economic problems in the US could extend to the rest of the world, weakening the economies of US trading partners


=Budgeting Strategies=
=Budgeting Strategies=
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==
==A Policy of Higher Inflation==

Revision as of 10:36, 4 May 2006

Budget Deficit | Terms to Know and Love | Long Term Effects | Outlook for the Future | Comparisons | Data | Works Cited




Federal deficits reduce the future standard of lining by lowering national saving which slows the accumulation of national wealth. Increases in government spending (increased government consumption) and federal tax cuts (increased public consumption) increase the federal deficit and reduce national saving. Even if the financial market (i.e. interest rates) is not significantly affected by the shifting of resources from from saving to consumption, decreased national saving can still occur. Although domestic investment is reduced by federal deficits, captial inflows from abroad tend to increase the productivity or both labor and capital.


Effects of Rising Debt on the Economy

  • decrease national savings and reduce investment in domestic capital stock and foreign assets
    • decline in the growth of workers' productivity would decline and real wages
      • tapering off of economic growth, leading to a sustained contraction of the economy
    • some portion of the deficit could be financed by foreign investors
      • over time:
        • foreign investors would own larger shares of US output, leaving fewer resources available for domestic consumption
        • financing of the deficit by foreign investors could decline
        • the exchange value of the US dollar could plummet
        • interest rates could soar
        • consumer prices could climb
        • the economy could contract abrubtly
        • stock markets could collapse
        • the economic problems in the US could extend to the rest of the world, weakening the economies of US trading partners

Budgeting Strategies

Future policies are what matter!!!


"Budgetary paths are economically unsustainable not when federal debt hits a critical level but when the government adopts policies that cannot be carried out indefinitely." -CBO, December 2005 (The Long-Term Budget Outlook)


A Policy of Higher Inflation