Question

The President of the United States has been elected on the promise of fiscal responsibility as a key mandate of the electorate. By law he cannot reduce the net interest paid on the debt. The President's budget is projected to leave the country with a $1400B deficit.

The United States is subject to global security concerns tied to recent terrorist attacks both domestically and internationally. At the same time, a lingering recession and financial markets rescue package reduces the government's tax revenues and forces the government to increase its spending on unemployment benefits, welfare, housing assistance, food stamps, and other need-based programs. Because of the increased spending and reduced revenues, the nation falls into a projected deficit of nearly $X in 2020 (This is the first piece of the information you need to find).

The President is committed to keeping his campaign promises to avoid future crisis over the US's financial standing. He must raise taxes, cut spending, or a combination of both to stay within his new guideline of a deficit below $1400B. The President turns to you, his trusted economic advisor, for help. (Note: While some events in this scenario reflect actual events, others are hypothetical for the purposes of this exercise. Budget figures in the simulation are actual White House figures of 2012, including spending and revenues of 2012.)

Given the information you watch and read in the preceding Week 7 activities, use that background to answer the above questions for discussion. Since the simulation is using 2012 numbers, start off with actual numbers just to inject a sense of reality into this discussion. Research this information from a reliable source and begin your analysis with what you found. Finally, analyze the effect your choices will have on the economy.

Answer 1

Answer: The Economy is in difficult times, and difficult decisions are required to be made . since global security concerns are alarming no change in the outlays in that regards should be made. . Anyway, expenses being made on internatinal affairs are only 84712 billion, and that is surely not a major reason behind the burgeoning deficit. Aloha reduction in expenditure on health, that is Projected to be $346.7 billion, budget deficit can be brought docan by $84,67 billin an expenditure on · Furthermore, a 10of. reductim reduction in reteran benefits income security, a gay and genices, and a 2o4. reduction is education, training, employment, and social services will bring down the budget deficit to 81,093. 60 billion.

The impact of the reduction in government spending will be that the Is cine will shift leftwards. The shirt un impact on the economy will depend on how the fed will respond. If the ofed makes no change in money supply, the output both will fall, and the economy will be in an even deepes depression: • However, if the fed responds by increasing the money supply, the LM are can offset the impact on output that the reduction in government spending will entail. _ o