Question

For this discussion activity, you will get insight into the federal budgeting process and how key allocation decisions are made. As part of that effort, you will work through the National Budget Simulation in an effort to achieve a budget deficit of $1400B dollars. Scenario: 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

Maintaining fiscal discipline at the same time averting recession and financial slowdown becomes catch22 situation wherein either of them is possible at time.

The best way to inject booster to economy and alleviating slowdown and recessionary fears is by introducing structural reforms anf increasing minimum wages and relaxing. Sectoral laws to ease harmonisation anf consolidation and also boost the wage outgo which all in turn helps boost economic activity. However this requires amendments to Constitution and support from opposition parties.

This must be coupled woth an expansionary monetary policy backed by US Fed which induces them to Cut diwn interest rates, purchase government securities and cut diwn CRR and SLR requirements to infuse liquidity and cash flow into system.

This helps maintain budget deficits and same time navigate through financial crisis.

The positive repurcussions here are stability in inflation fromndeflated economy, higher GDO growth, higher aggregate consumption and higher exports as the Dollar gets depreciated and lastly mergers and acquisition and ease if doing business making the economy leaner.

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