Question

Congressional Budget office(CBO) estimates that the budget deficit of the fiscal year 2011  is about $1.3 trillion. The deficit for 2012 was to improve little(around $1.1 trillion). The deficit for 2013 was $680 billion. Finally the deficit reduced to $483 billion for 2014. The federal budget deficit of 2015 was $439 billion. The federal budget deficit of 2016 was $534 billion. The federal budget deficit of 2017 was $668 billion.

Q3) Will Trump's stimulus package( Spending increase and Tax cut) contribute to another huge budget deficit down the road? Is this TAX CUT with large budget deficit necessary for the economy now( could this policy be overheating the economy or inflationary?) or will it cause another financial danger to haunt US economy soon due to crowding out from these huge deficit?

Answer 1

Yes we believe it will cause large deficit. There is no need to give tax cuts to large corporations. It was better to raise consumption of households which Contributes significantly to aggregate demand. So if govt was to give tax incentives, why not provide relief to middle class. Anyways the economy is currently growing more than level which is sustainable in longrun I. E 2%. employment level is touching historic records. The new adventure is not required. It might shift Aggregate demand, cause serious inflation see fig1. Crowding out is also most likely see fig 2