ECO 372 Week 4 Discussion Question 1 - 90405

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How does a government budget deficit affect the economy? When the government spends more than it takes in, it creates a deficit. The 2010 deficit for 2010 was $1.57 trillion. If the government does not cut spending, they will more than likely increase taxes to reduce the deficit. A rise in the deficit can create various problems; rise in bond yields and general interest rates, potential for inflation (if the government funds deficit by printing more money), and higher taxes. I fear that at the rate our government keeps spending and printing money we might end up like Spain with a national debt of 60%. A key issue to forecast growth and inflation, if a country faces years of negative growth and a period of deflation (falling prices). The debt to GDP ratio will rise rapidly. The country needs to forecast growth to help maintain a reasonable GDP ration...
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How does a government budget deficit affect the economy? 

When the government spends more than it takes in, it creates a deficit

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