Deficit Spending

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Assignment 1: Deficit Spending

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During the Great Recession, like any other economic downturns, as unemployment rises, aggregate income declines causing a major decline in tax collections. On the other hand, with the rise in unemployment, spending on safety net programs rise. So, there are not too many good options available to resort the health of the national economy. It will be very difficult to defend cuts in the federal government programs and especially the programs geared to sustain the minimum of the standard of living for the recent “poor.” So, government needs to increase its borrowing. Deficit spending refers to government spending exceeding what it brings in federal income and corporate taxes during a certain period. Deficit spending hence increases government debt. Most economists accept that deficit spending is desirable and necessary as part of countercyclical fiscal policy. In such a case, government increases its borrowing and hence its deficit to compensate for the shortfall in aggregate demand. This is derived from Keynesian economics and has been the mainstream economics view. Following John Maynard Keynes, many economists recommend deficit spending to moderate or end a recession, especially a severe one. When the economy has high unemployment, an increase in government purchases creates a market for business output, creating income and encouraging increases in consumer spending, which creates further increases in the demand for business output. (This is the multiplier effect). This raises the real gross domestic product (GDP) and the level of employment and lowers the unemployment rate. Government borrowing under such circumstances increases the demand for borrowing and thus pushes interest rates up. Rising interest rates can “crowd out” (discourage) fixed private investment spending, canceling out some of the demand stimulus arising from the deficit

Write an essay analyzing the advantages and disadvantages of deficit spending and the effects of federal government borrowing on the economy i.e., the “crowding out” effect.

Complete this essay in a Microsoft Word document, and in APA format. Note your submission will automatically be submitted through “TurnItIn” for plagiarism review. Please note that a minimum of 700 words for your essay is required.

Your paper should be structured as follows

1. Cover page with a running head

2. Introduction: What is deficit spending and how does it work.

2.1. Advantages

2.2. Disadvantages

3. Crowding-out Effect

4. Conclusions: Do you believe that deficit spending helps or hinders short-term and long-term economic growth?

5. ReferencesCriteria Rubric

 

Exemplary

Accomplished

Developing

Beginning

Did not attempt

Criterion Score

Assignment Content

65 points

Exceeds expected level of explanation and discussion on the assignment areas/topics. All areas included in the analysis.

55.25 points

Meets expected level of explanation and discussion on the assignment areas/topics. All areas included in the analysis.

48.75 points

Does not meet expected level of explanation and discussion on the assignment . No more than one areas of analysis need improvement and/or additional development.

42.25 points

Does not meet expected level of explanation and discussion on the assignment . Multiple areas of analysis need improvement and/or additional development. One or more areas were not addressed.

0 points

Does not meet expected level of explanation and discussion on the assignment. Significant areas of analysis need improvement and/or additional development. Assignment not submitted.

Score of Assignment Content,/ 65Criterion score has been overriddenAssignment Content

10 points

Student demonstrates proficient command of the subject matter in the assignment. Assignment shows an impressive level of depth of student’s ability to relate course content in examples given.

8.5 points

Student exhibits above average usage of subject matter in assignment. Student provides above average ability in relating course content in examples given. Details and facts presented provide an adequate presentation of student’s current level of subject matter knowledge.

7.5 points

The assignment reveals that the student has a general, fundamental understanding of the course material. Whereas, there are areas of some concerning in the linkages provided between facts and supporting statements. Student generally explains concepts, but only meets the minimum requirements in this area.

6.5 points

Student tries to explain some concepts, but overlooks critical details. Assignment appears vague or incomplete in various segments. Student presents concepts in isolation, and does not perceive to have a logical sequencing of ideas.

0 points

Explaination of concepts not provided and/or only surface level understanding is present . Assignment is incomplete or not submitted.

Score of Assignment Content,/ 10Criterion score has been overriddenThesis and Support

10 points

The writing has a clearly articulated original thesis and subordinate ideas supported by reliable and relevant evidence based on original research.

8.5 points

The writing has a clearly articulated thesis supported by appropriate evidence and sound logic. Minor gaps in logic and argument may appear.

7.5 points

The writing has a clear thesis and related subordinate ideas supported by clear thinking and appropriate evidence. Logical arguments may be one-sided or incomplete.

6.5 points

The writing may need a more clearly articulated thesis and/or appropriate related subordinate ideas. Fuzzy logic may be evident and adequate supporting evidence is lacking.

0 points

Student has a presented information with little to no support of reference materials. Assignment is incomplete or not submitted.

 

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