Question

1. By 2012 the federal government spent close to $1 trillion ($1,000,000,000,000 – that’s really a lot) more than its income (a $1 trillion deficit). Its total debt has increased upwards of $18 trillion.

a. What positive effects do you think this borrowed money could have on the US’s economy (be very specific)?

b. What negative effects do you think this borrowed money could have on the US’s economy (be very specific)?

c. Will all of this debt have an effect on you as a student? as a 55 year old worker?

Answer 1

1 - The increased spending of the government on the economy will act as the stimulus for the economy. This will increase the level of income in economy , boost the consumption and investment and boost AD.

2 - This increased government spending will lead to the increase in deficit of the government . To recover the debt , to overcome the burden of the interest payment , the domestic interest rates and taxes may rise in the long term and may hurt the consumption and investment .

3 - As a student , this increased debt may result in the higher public education fee. The retired personels may see the reduction in their transfer income through reduced spending of government to reduce the burden of deficit.