High Budget Deficit and the Growth Rate of the Economy Essay

High Budget Deficit and the Growth Rate of the Economy - Essay ExampleThe nation with high hole-and-corner(a) saving will offset the moderate deficit financing in a much better way to provide for investment capital needful for the maturement of economy. Thus, for future economic product national savings matter highly. National saving is the measure of the accumulation of financial and other real assets overtime. time to come national income will largely depend upon this accumulated stock of assets. Unfortunately, deficit financing coupled with nil or negative private saving has make the national saving negative. In this perspective, deficit financing on a sustained basis cannot help US economy. Higher have-to doe with Rates Macguineas (2011) argues that incessantly increasing deficit financing will exert upward pressure on interest pass judgment thereby increasing the cost of capital. Budgetary deficits argon financed through government borrowings. When government borrowings r ise to a high level, the government may have to tolerate increased interest rates so that commensurate buyers are attracted to buy government debt. Obviously, higher interest rates will tend to retard the economic growth rate. Higher Borrowing Leads to Higher Interest Payments Increasing borrowings year after year will necessitate higher spending on debt-interest. Higher interest burden eats away the tillable deployment of the capital necessary for the economic growth. As a result, the needy sectors such as education, health starve of the funds that are necessary to provide trend to the economy. Defense Spending and Budgetary Deficit Korb et al. (2011) of the center for American Progress (CAP) argue that defense spending has created the current fiscal crisis. The experts from the CAP believe that the immense deficit is the result of increasing defense budget during 2004 through 2012. It...This essay offers a comprehensive review of the effects, that the high levels of budget def icit exercise on the economic development of the country, using the example of the US. In 2011, it was the third straight year when the gap between American governments income and spending remained negative to the tune of $1 trillion or above. In percentage terms, the deficit is hovering at around 10 percent of gross domestic product in last deuce years. This was causing serious concerns at several quarters on soaring national debt.The national saving rate is important for future economic growth and budgetary deficit has a direct bearing on national saving rate. Since last many years private saving is meager in the US and in last couple of years it has gone even negative. With such a low/negative saving, it is difficult to obtain economic growth and US productivity at desired rate. Ever increasing deficit financing will exert upward pressure on interest rates thereby increasing the cost of capital. Budgetary deficits are financed through government borrowings. When government borrow ings rise to a high level, the government may have to offer increased interest rates so that sufficient buyers are attracted to buy government debt. Higher interest rates retards the economic growth rate. It can be concluded that when the government incurs debt, it is important to know what government does with that money. If the money are deployed for productive purposes, it can certainly help the economy of the present as salubrious as future generations.