ECO/372
October 20, 2013
Chuck Sigmund
Fiscal Policy
The United States government manages money to support the citizens of its country. The support can be affected by a surplus, deficit, or substantial debt; which affects production, domestic affairs, and international trade. Understanding how each variable interacts with another, the debt, deficit and surplus must be analyzed.
Production
To understand how the debt, deficit, and surplus can affect the United States economy, one can start with evaluating Gross Domestic Product (GDP); the total value of what the country produces in goods and services (Colander, 2010). When a country has a surplus, the country can lower its deficits from other periods and possibly reduce the tax burden on its citizens. When the country has a budget deficit it deflates the GDP because money earned from what the country produces will be lost in, paying back the deficit and interest on the deficit. The fiscal deficit to GDP ratio measures a country's fiscal deficit, or the amount by which budgeted expenditures exceed expected revenues, in relation to the country's GDP. The U.S. debt is now at a 100% of our country’s GDP. (Mercatus, n.d.) This means that our debt will be a burden on our nation’s economic growth. With this lack of economic growth comes a lack of jobs. This explains why the U.S. has experienced slow GDP growth and a slow dropping of unemployment levels over the past 3 years. The United States government maintains its finances similar to a household, but accounts for its income entirely different. The government will borrow money from the general public and issue IOUs in order for repayment and will repay the loans by taxing the general public (Seater, 2008). When the government is running a surplus, the money is spread through the economy and can create inflation helping to lower the deficit. When there is inflation, the real value of what is owed can drop with a potential to bring down the deficit more...