Economic Growth Rate - Research Paper Example

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. Thesis Statement Can budget deficit affect the economic growth?

Economists generally agree that high budget deficits today will reduce the growth rate of the economy in the future. Why? Economists are of the opinion that sustaining large deficits can reduce the rate of growth. If the aim is to attain future gains in the standard of living it is necessary to curb down the levels of consumption and take the requisite steps in order to increase the level of savings. The deficit in the federal budget along with the low rate in the savings will cause a gap between the total savings and the investment.

Spreading the foreign ownership of assets and mounting payments of investment will result in capital inflows (Wallich, 2012, p.78). The same reason can be accounted for the deficits in trade to occur. The trade deficits will keep on piling up with the continuation of capital inflows. The rate of interest is supposed to take the steep rising path if the investors turn down from providing capital in this kind of situation prevails. The value of dollar is likely to be depreciated. The assets of United States will be cheaper relative to the foreign assets and the investment rates will get curtailed with high rates of interest.

The price of the imports will rise and the exchange rate will have the tendency to get low. The country will have to increase its reliance on foreign capital (Sanchez, 2010, p.523). The future generation will not be able to match with the expectations of the services from the government. The advancement in technology will get hampered and the standard of living of the country will feel the heat. Do the reasons for the high budget deficit matter? In other words, does it matter whether the deficit is caused by lower taxes, increased defense spending, more job-training programs, and so on?

If the deficit is caused by poor governance then it is a matter of concern and calls for immediate appropriate steps. But if the deficits are caused by something that is believed to be productive for the future, then such deficits can be withheld for a certain point. If the deficit is caused by lower taxes, then people will have more disposable income and that might not be beneficial for the economy as a whole. But if the deficit is caused by increasing cost in defense services or increased spending in the job training programs, it is