ECON MACROECONOMICS PAPER

Similar to many other economic downturns, during the Great Recession of 2007-2009, unemployment rose and aggregate income declined. In turn, it caused a major decline in tax collections. On the other hand, with the rise in unemployment, government spending on safety net programs rose.

Therefore, to stabilize the national economy, the government appears to have two key options (neither one being perfect). The first one is to put in place severe austerity measures (i.e., to cut spending). The second one is to increase borrowing.

Some would argue that it is difficult to defend cuts in the federal government programs and especially the programs geared to sustain the minimum standard of living for the "poor." The other would say that the increase in borrowing (i.e., an increase in budget deficit) has major adverse impacts on the national economy.

Assignment Instructions:

Write an essay discussing the above and analyzing the current situation with the national debt in the U.S.

Briefly summarize the key theoretical views on the national debt: Keynesian and Classical.

Discuss the long-run costs of having high national debt.

Discuss the pros and cons of eliminating budget deficit:

- solely through a personal tax increase

- solely through a cut in spending via a decrease in transfer payments (Social Security, Medicare, and Medicaid, etc.) and a decrease in discretionary spending (such as defense and education budgets, for example).

Conclusion

References