Question

Briefly describe some of the demographics trends that are predicted to increase the government's budget deficit.

Briefly describe some of the demographics trends that are predicted to increase the government's budget deficit.

Homework Answers

Answer #1
  • From a demographics perspective, it is noticed that an ageing population affects the macroeconomy significantly. A large portion of the ageing population's consumption is financed by the public sector, which causes government expenditure to increase, hence, causing a greater budget deficit. e.g. Expenditure on social security, medicare,medicaid, etc.
  • From another perspective, if the population is ageing, labor force growth rate slows down , whereby reducing tax revenues for the government, which increases debt. Hence, increasing the budget deficit.
  • It is noted that the government debt(hence budget deficit) would continue on an upward trend, relative to the GDP.
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