Economists generally agree that high budget deficits today will reduce the growth rate of the economy in the future. Why? Do the reasons for the high budget deficit matter? In other words, does it...

Economists generally agree that high budget deficits today will reduce the growth rate of the economy in the future. Why? 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? In your analysis, what role do fiscal and monetary policies have to lead to higher or lower budget deficits? How do budget deficits affect overall long-term economic growth and the debt that the U.S. has to contend with? Writing the Final PaperThe Final Paper:Must be 5 to 6 double-spaced pages in length and formatted according to APA style as outlined in your approved style guide. Must have a cover page that includes:- Title of paper- Student’s name- Course name and number- Instructor’s name- Date submitted Must include an introductory paragraph with a succinct thesis statement. Must address the topic of the paper with critical thought. Must conclude with a restatement of the thesis and a conclusion paragraph. Must use at least four scholarly resources. Must use APA style as outlined in your approved style guide to document all sources. Must include, on the final page, a Reference List that is completed according to APA style as outlined in your approved style guide.
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INTRODUCTION:
A fiscal deficit can be debated in many ways. This can take the form of causes of deficit, areas where the spending has been done and the effect on future growth. Ithas ben argued in theory and proven empirically that a deficit can have a positive effect on growth if the deficit is not continued for long periods (it is treated asa short term/temporaray solution to a weak economic condition), another important factor is the areas on which this spending is done. Productive activities like infrastructure, investment in human capital and employment generation contribute to future growth in GDp as well as help to close the deficit to 0 levelquickly. ‘Unproductive’ activities make it tough to na
ow the gap as well as impact negatively on future GDp. Empirically there is strong evidence to reval that fiscal deficits that are part of an overall deficit hamper economic growth.
LONG RUN and SHORT RUN IMPACT of A DEFICIT
A fiscal deficit is a situation where the government spends more than it earns. The government revenues are short of its expenditure. The amount of deficit = G-T where G is government spending and T is tax revenues. This typically happens when an expansionary fiscal policy is followed. Such a policy is neccesary during times of downturn or recession, when the GDP is lowered and is growing at low/ negative rates. As per Keynesian prescription, the economy can recover if the effective demand is raised. One way to do so is to increase the government spending, which forms part of aggregate demand (AD). It is expected that a rise in AD will boost GDP.
However the problem with a deficit is that it cant continue forever. The excess spending over revenues has to generated from printing new money or from the economy itself. The first option increases the money supply inthe economy, which increases demand from consumers and investors. Without any co
esponding rise in supply the increased demand only fuels inflation,which is a negative effect of sustained deficits. The recent case of US is an example. The Quantitative Easing program has causeda spike inprive level and record levels of deficit. As a result the...