ECO 372 Week 4 Learning Team Assignment Weekly Reflection -1
ECO 372 Week 4 Learning Team Assignment Weekly Reflection -1
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Date Created: 11/06/15
Running Head: WEEK 4 REFLECTION 1 Week 4 Reflection ECO/372 Principals of Macroeconomics WEEK 4 REFLECTION 2 Week 4 Reflection Monitoring the national debt has always made people uneasy and trying to understand what the debt really means has come into question. The general belief is that the debt is something to worry about and that the country could crash into turmoil and would mean the fall of the economic system within the country. This is not always the case the country has been functioning with a debt for the majority of the time since the 1950s. The country is not in trouble because of the debt in fact many times the country is stronger when it has debt (Colander, 2010). As long as the country keeps it GDP to debt ratio below the 100% margin the country will still be able to function at this time the ratio is at 75% (Colander, 2010).. With this in mind the idea that the country is running a debt is not that worrisome and as long as the government can keep the debt below the GDP there is not as much to worry about. The idea that between the spending on the Iran war and the expansionary policy enacted during the recent financial crisis is the reason for the debt we can recover and reduce the debt when the war comes to an end and the financial crises starts to relieve itself. The Fed and the government still need to enact policy to help reduce the debt but as long as the economy starts to grow, and the GDP is still healthy the debt is not as big of a concern as it could. A budget surplus is when a government’s income is greater than its spending over a given period; the opposite to that would be when the government’s income is less than its spending, which is known as a budget deficit. There have been instances of both throughout history and are very typical concerning financing and operating a government. Some Economists become concerned with a government debt that rises sharply as a proportion to the GDP because that usually indicates a hike in interest rates. Acquiring a budget deficit is not necessarily considered WEEK 4 REFLECTION 3 to be a negative, it is just something that the government must monitor and develop ways to improve the situation. This week’s readings are based on the influences that deficits, surplus, and debt have on the economy. It has not been a difficult week for me as far as understanding, but it has raised some good points as to how individuals believe the deficit should be addressed. Analyzing the various concepts and effects helped to generalize various points of view that addressed the concerns of the economies current situation. One key thing that is interesting is the difference in debt and deficit, but more so the extensive effects on the economy based on whether there is a deficit or a surplus. Logically, if the government or Federal Reserve could budget for deficit periods and surplus periods, the economy would equal out in the long run. Either way, the week has had some good topics that were addressed and issues recognized that proper budgeting can correct, but not without sacrifices. This week’s readings discussed the advantages and disadvantages of governments running a surplus or deficit budget. A surplus budget means the government is bringing in more money, usually from taxes than it spends whereas a deficit means the government earns less money than it spends. Another way to look at a deficit occurs when government spending is financed by selling government bonds as opposed to a balanced budget where government spending is financed by taxes (Colander, 2010). Early economists adhered to the theory of sound finance, supporting government spending through taxation because it held the government responsible for the spending. Another term discussed is functional finance, which says that governments should make spending decisions based on their effect on the economy rather than on a moralistic basis of running a balanced budget (Colander, 2010). Automatic stabilizers are WEEK 4 REFLECTION 4 tools the government uses to react to business cycles and include unemployment insurance, welfare payments, and the income tax system. We have seen these programs extended during this current recession in an attempt to stimulate spending, grow industry, and ease unemployment. According to the text, the government should allow the automatic stabilizers to work instead of instituting policies unless the country is heading into a depression (Colander, 2010). Governments must be careful to apply judiciously the methods discussed in the text to various situations. This week we mainly focused on the federal budget. There have been times in the past when the federal budget has been at a deficit and there have been times when it has had a surplus. Overall the federal government has to control its spending based upon the revenue that it receives and when the government needs to stimulate the economy by added spending does the budget go into a deficit. Analyzing the various effects that can happen because of a budget deficit or surplus has helped me to better understand our federal budget and how the government budget system works to keep the economy going. WEEK 4 REFLECTION 5 References Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: McGrawHill/Irwin.
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