Question

use the graphical tools, along with a “story.”

A. The federal government ran a budget surplus in the late 1990 and in the year 2000, but has since returned to running a budget deficit.

3. Present an analysis that identifies any long term gains which could result from a reduction in the budget deficit. (Analyze the composition of output.)

Answer 1

The output is the sum of household consumption, investment, government expenditure, and net exports.

Represented by, Y=C+I+G+(n-X)

As a longterm change, if government spending decreases and subsequent negative effect of the crowding-out effect also comes down then expansionary monetary policy cause the firms to teake more funds and increase their investment. So this will lead to capacity building of the firms which will boost the net exports. All these developments are good for the countin the long run.