Economics Today: The Macro View (19th Edition) (Pearson Series in Economics)
Economics Today: The Macro View (19th Edition) (Pearson Series in Economics)
19th Edition
ISBN: 9780134478760
Author: Roger LeRoy Miller
Publisher: PEARSON
Question
Book Icon
Chapter 14, Problem 14.1LO
To determine

Causes of government budget deficits and meaning of public debt.

Concept:

Budget deficits: It occurs when the government’s expenditure exceeds its estimated revenue.

Public Debt: It is also called as government debt. It represents the total outstanding liability of a country’s federal government. It arises when the government borrows money to finance their expenditures (when tax revenues aren’t high enough).

Expert Solution & Answer
Check Mark

Explanation of Solution

The federal government budget deficits occur because of the following reasons:

(a) High spending and low taxes: The government can face budget deficit if they are spending too much and/or keeping the taxes low. This would lead to a deficit on government budget. Sometimes the government spends more and levy lower taxes in order to gain popularity and votes.

(b) High level of tax avoidance or tax evasion: Most of the time people and businessmen takes advantage of tax loop holes and don’t pay the taxes. The governments in some countries are less effective. So, the tax collection drops and causes to a budget deficit.

(c) Demographic pressure: If the country has ageing population, then government spending will be more on the state pension and their health care facility. The tax rate will also be low. While, a fast growing population will also put more pressure on the government to fund essential public and merit goods.

(d) Fundamental macroeconomics shifts: In the time of recession, the government has to spend more and decrease the tax rate in order to boost aggregate demand. This also causes to a government budget deficit.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Analyze financial banking products from the Asset-Based Financial Products side (like credit cards, loans, mortgages, etc.). Examine aspects such as liquidity, risk, and profitability from a company and an individual point of view. Ensure that the interventions demonstrate analytical skills and clearly express the points of view regarding the topic.
provide source where information was retrieved NAME OF SCHOOL: Florida Polytechnical college ADDRESS: PRIVATE OR PUBLIC: ENTRY REQUIREMENTS - GPA, SAT/ ACT SCORES: IN STATE TUITION COST: DORMITORY COST: OFF CAMPUS HOUSING OPTIONS: AVERAGE MONTHLY RENT FOR A ROOM in the area: MEAL PLAN: Do they have them? Are they mandatory for freshmen? How much $: CAMPUS SIZE: (don't put acres - is it a small, medium, or large campus?) TEACHER STUDENT RATIO/CLASS SIZE: NUMBER OF UNDERGRADUATE (freshmen, soph, junior, seniors) STUDENTS ON CAMPUS: FINANCIAL AID/SCHOLARSHIPS OPPORTUNITIES: ACCEPTANCE RATE: GRADUATION RATE: ONLINE OPTION? BUSINESS DEGREES: (list them) ACADEMIC SUPPORT - TUTORING: JOB PLACEMENT/CAREER SERVICES: what % of students get lined up with jobs right out of college with the school's help? INTERNSHIP OPPORTUNITIES: Paid? Unpaid? STUDY ABROAD PROGRAMS: Do they exist? How much $? SPORTS: Competitive - D1, D2, D3, etc? Intramural? (non-competitive sports opportunities) CLUBS: How many?…
Explain the following:  How is 4 to 5 a 22% increase?  How is 100 to 80 a 22% decrease?  Not pictured: How is 100 to 90 a 11% decrease?  How is 100 to 50 a 67% decrease?
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education