In your responses, comment on your peers post by comparing and contrasting your experiences and opinions. Share current news articles or references from the textbook that support your decisions in the simulation and your claims related to the national debt.

My post:

I liked this simulation because of how instructive it was about what the adjustments would accomplish and how they would influence the population and the economy. It was also eye-opening to me how much money is truly being spent, if these figures are correct, on loopholes and tax benefits for various levels of society and corporations. The strategy pursued was to reinforce and focus more on those regarded to be living in/at poverty levels and those considered lower class. Child care, free two-year community colleges, affordable housing, student loans, paid family and medical leave, and higher spending on K-12 education were all priorities for me. I also went after corporations, reformed the tax system, and reformed the medical and defense industries by cutting spending, raising taxes, closing loopholes, creating better programs, and increasing taxes on the top 1% of earners. This produced what I consider to be positive results, with the debt decreasing to 78% in 2033 and 44% in 2050.

Do I think having a highnational debt is a problem for future economic growth? Without a doubt, as a country grows, so do its requirements, population, programs, and, ultimately, spending. A country, I feel, will always be in debt, whether they follow what I did or not. What I didin the simulation, I believe, would be impossible to accomplish really in the United States. There are simply too many programs, special interest/lobbyists, and providers that affect much of what happens in this country, and most of us wind up suffering the consequences, such as inflation and high pricing for goods and services. During my research, I discovered various studies that claim there is no perfect debt-to-GDP ratio. However, most sources state that it is beneficial to keep debt low. As a result, a country can be in debt while simultaneously doing well financially. The Economic and Social Commission for Asia and the Pacific noted in an essay titled "Forward-looking Macroeconomic Policies - Re-examining Inflation and Debt Limits," "In fact, there is no optimal debt- GDP ratio." A debt-to-GDP ratio of 60% is frequently cited as a sensible limit for wealthy nations. The proposed debt-to-GDP ratio for developing and emerging nations is 40%, which should not be exceeded in the long run." (Forecasting Macroeconomic Policies: Reassessing Inflation and Debt Limits, 2013).

The increased interest rate reduces the number of goods and services requested. When credit costs rise, the demand for investment items falls. As a result, as government purchases increase and demand for products and services increase, it can drive out investment. The crowding-out effect negates some of the aggregate demand for government purchases. (Mankiw, 2021)

Reference:

Debt Fixer | Committee for a Responsible Federal Budget. (n.d.). Committee for a Responsible Federal Budget. https://www.crfb.org/debtfixer

Forward-looking macroeconomic policies: re-examining inflation and debt limits. (2013, July 22). ESCAP. https://www.unescap.org/resources/mpdd-policy-briefs-no14-july-2013-forward-looking-macroeconomic-policies-re-examining

Mankiw, Gregory N. (2021) 10 Principles of Economics.

Peers post:

I actually really enjoyed this simulation. It was really interesting to be able to make real world decisions and be involved in the types of difficult conversations that our government officials have on an everyday basis. I found myself actually getting invested in the simulation and really taking the time to think out the different options and what is most important to keep or increase in the different categories. My initial approach was to make decisions based on my values and what I thought would be best for the overall country. I was successful in reducing debt, however, I was surprised to see the results of some of the categories that I reduced within the most, such as healthcare. I believe healthcare is incredibly important and severely underfunded in this country, yet, I found that that was one of the categories I reduced debt the most within.

In my opinion, high national debt has been a problem and will always be an increasing issue for the future of the nation and its economic growth. We will forever be underwater and in debt to other countries, because we are continously neglecting to fund some of the most critical parts of life within our own country, such as unemployment, food insecurity, and education. In my opinion, it is time to fix our part of the world, within our own borders, and then expand out when our country and its citizens are more secure and healthy.

Ideally, keeping a low debt-to-GDP ratio is necessary for success. Investopedia states, "High debt-to-GDP ratios could be a key indicator of increased default risk for a country. Country defaults can trigger financial repercussions globally," (Kenton, 2022). Furthermore, the World Bank Group Library states that "estimations establish a threshold of 77 percent public debt-to-GDP ratio," (Grennes, Caner, Koehler, 2013). With that being said, the ideal ratio would not exceed 77 percent. Crowding out is when there is a change in aggregated demand within the economoy that forces an expansionary policy. It is considered to have a negative effect of increased government spending because it raises interest rates, furthermore, reducing investment spending,. Additionally, it can raise inflation rates and slow down the private sectors' economic activity, while decreasing spending and borrowing overall, (Mankiw, 2021).

Grennes, T., Caner, M., & Koehler-Geib, F. (2013, June 22). "finding the tipping point -- when sovereign debt turns bad". World Bank Group Library. https://elibrary.worldbank.org/doi/abs/10.1596/1813-9450-5391

Kenton, W. (2023, March 30). Debt-to-GDP ratio: Formula and what it can tell you. Investopedia. https://www.investopedia.com/terms/d/debtgdpratio.asp

Mankiw, N. G. (2021). Principles of Economics (9th ed.). Cengage Learning.