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Budget /financial crises - Research Paper Example

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Budget /Financial crises Contents Introduction 3 Research aims and objectives 4 Research Question 4 Literature Review 4 Research Limitations 7 Research findings and Analysis 7 Recommendations 10 Works Cite 12 Introduction The financial collapse that took place in 1929 indicated the U.S…
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Budget /financial crises
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Download file to see previous pages The financial sector was regarded as the servant of the real sector. The financial sector was thought to contribute in the most efficient fashion in economic performance for the years to come. The U.S. economy is regarded as the world’s largest economy and it possesses the characteristics of a mixed economy. The budget deficit for the financial year 2012 is 1,327 billion dollars (Chantril). The deficit for the year 2011 and 2010 was 1, 300 billion dollars and 1,293 billion dollars respectively (Chantril). Free market system exists in the economy. There is correlation between the federal budget and economy. The budget impacts on the growth of the economy and allocation or redistribution of resources. The difference between budgetary spending and revenues is defined as the budget deficit. Budget deficit contribute in the level of national debt. A variety of problems can result because of budget deficit. Lower national savings rate, higher rates of interest and inflation are some of them. The federal budget is taking an unsustainable path. The debt levels of the federal are expected to grow with the size of the economy. The elevated budget deficit is the cause of increase in federal debt. This will shed its effects on economic downturn. The excess expenditure is financed through borrowing. The federal government takes the policy of issuing securities. The households can make up their budget deficits through loans and credit cards. Some of the measures to curb down the budget deficit are cutting expenditures, levee taxes or a strategy that will involve both. Research aims and objectives The aim of the research is to identify the causes of the debt and how to overcome the crisis and how to overcome the crisis. Research Question Can the debt be corrected without raising taxes? Literature Review The rapid appreciation of the dollar was one of the important topics in the early 1980s. The U.S. deficit is hold to be one of the reasons for the appreciation. The real interest rates will get affected by any increase in the amount of deficit. The high interest rate will crowd out private investment spending. Such crowded out funds will find its destinations in other parts of the world. As the capital account surplus rises in the U.S., the real exchange value of the dollar will take the steep path upwards. Economists have not been able to land upon on a unanimous decision on the cause behind the changes in the value of dollar. The market’s expectation on the future behavior should be reflected in the current exchange rate. The observed and expected current fiscal policy of the country is assumed to have significant effects on the international exchange rates because of globalization. The rapid increase in expectation on future deficits has contributed in changes in the dollar value in the initial years of 1980s. Again the reduction in the value of dollar in 1985 may be due to the fall in expected deficit in the budget (Melvin, Sclagenhauf and Talu, 2012, 500). Now we consider the present situation of the national debt. The debt amount currently exceeds 10 trillion dollars. Economists are of the opinion that the level of the debt is not alarming when compared in international standards. The current account in the balance of payments statistics is the prime reason for the deficit. The record displays the flow of transactions over a period of time. The accumulated wealth owned by the federal government is regarded as the national debt. ...Download file to see next pagesRead More
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