ESSAY : Monetary Policy and Fiscal Policy

Answer the following questions in a 500 word essay.

Assume the Federal government runs a budget deficit in the current fiscal year.

i. Should the government always be required to balance the budget? Explain why and include the pros and cons.

ii. How can the Federal government fund (finance) the budget deficit?

iii. If the Federal government decides to issue U.S. Treasury securities to fund the deficit, what will happen to the level of national debt, all other factors held constant?

iv. Assuming the Federal government and firms compete for the same savers’ dollars in the loanable funds market, what will likely happen to interest rates?

v. Given your answer under (ii and iii) above, is crowding out more or less likely to occur if the deficit is funded by Treasury securities? Explain.
References (add references in APA format below)

SAMPLE SOLUTION

A balanced budget happens when the revenues equal or is more extensive than total costs. A budget is stated as balanced after a whole year of incomes and expenses have been incurred and recorded. Individuals who support a balanced budget argue that increasing federal leverage will have destructive impacts in coming days. Others highlight that the state budget is not similar to a household budget and should not be seen. The balanced budget would hurt the economy regardless of the economic state. This would risk dropping a shaky economy into recession and make the cycles frequent, longer and healthier leading to high job loss. On the other hand, it has been argued that…