Budget Deficit

Homework #3 Total : 1 point if you complete all three questions. Q1 ,2,3 and 4 has each 1 point, but Q5 has 6 points.

1) Define MPC(marginal propensity to consume) and MPS(marginal propensity to save) (1 point)

2) Define multiplier effects, based on Keynesian Fiscal policy. (1 point)

3) When economy falls into a recession, what kind of fiscal policy is needed? Give a specific tool of fiscal policy.(1 point)

4)Discuss the long run effects of “Crowding out” due to a short run expansionary fiscal Policy.(1 point)

5) Treasure Hunt:

Part 2: It seems big, but you need to choose 1 topic among the 8 bellow to write about.

Your comment has to be more than five(5) sentences based on researched facts and logical analysis. to earn the credit.

Budget Deficit

Congressional Budget office(CBO) estimates that the budget deficit of the fiscal year 2011 is about $1.3 trillion. The deficit for 2012 was to improve little(around $1.3 trillion). The deficit for 2013 was $680 billion. Finally the deficit reduced to $483 billion for 2014. The federal budget deficit of 2015 was $439 billion. The federal budget deficit of 2016 was $552 billion. The federal budget deficit of 2017 will be $559 billion.

1) Are we going back to the budget deficit cycle again? Is it because of slow recovery, sagging stock market or the war against terror or The president Obama’s fiscal steroid of stimulus?

2) or is it now on right track to reduce the size of budget deficit?

3) Although the war against IRAQ was over quick(?), there will be involved with the additional cost after the war including the reconstruction and humanitarian aids , or another war(Afghan) or fighting against ISIS. How does this military cost contribute to our rising budget deficit?

4) Will Trump’s stimulus package( Spending increase and Tax cut) contribute to another huge budget deficit down the road? Is this large budget deficit necessary for the economy now( could this policy be overheating the economy or inflationary?) or will it cause another financial danger haunting US economy soon due to crowding out from these huge deficit?

5) Do you have any fresh ideas to reduce this budget deficit to prevent American version of Greek Tragedy?

6) To finance current budget deficit, US government relies on T bond sales. The significant portion(over 30%) of T bonds are purchased by foreign governments or capitalists(lately China). What is your opinion about relying on foreign debt to finance US budget deficit? If some foreign countries became unhappy about trade or political matter with US government( of the new president, Trump) or due to lack of confidence over US T Bond and decided to cash out(sell) US T bonds they are holding, what economic consequence do you expect to be occurred?

7) To reduce a budget deficit, is it a good idea to raise a tax on the wealthy?

8) US national debt to its GDP is a little over %100. Japanese national debt to its GDP is getting close to %250. Could this be a potential disaster for the global economy ,since Japanese economy is 3rd largest one in the world?

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