ECO 202 Simulation
Because there were so many various factors that might be changed to help the US with its debt
problem, I found this simulation to be entertaining and informative. By effectively reducing the
predicted short- and long-term debt, I was able to achieve the debt reduction targets of 60% by
2050 and 90% by 2032. Throughout the simulation, my goal was to distribute the savings across
a number of financial areas while primarily raising taxes on the extremely rich and
environmental initiatives. In addition, I intended to have as minimal of an impact as possible on
common people while planning for the future. For instance, I chose to implement a wealth tax, a
carbon tax, and higher prices on alcohol and tobacco while simultaneously choosing to give free
community college, universal pre-kindergarten, and other policies.
I don't think the size of the national debt will significantly hinder future economic development.
Given that there shouldn't be major issues if the government makes the right investment
selections and creates productive assets that can boost national income due to the multiplier
method. Furthermore, if the return on investment outweighs the cost of the interest payment,
maintaining debt will not be a problem. If the interest growth rate difference increases (due to
slow growth and high interest rates), the huge national debt may become a concern (Barrett,
2018). 60% is the optimal debt-to-GDP ratio (Committee fora Responsible Federal Budget, n.d.).
At 60%, we have the financial flexibility to address upcoming challenges and support economic
development (Committee for a Responsible Federal Budget,n.d.). Many nations wish they could
reduce their debt-to-GDP ratio to 60% knowing that the global average is about 90%, but
economic circumstances frequently intervene and prevent this from happening as cleanly as
planned (Lu, 2020).
When public spending rises and private spending declines, this is known as the crowding-out
effect. The limited quantity of loanable money in the market decreases as a result of increased
public sector spending since it causes a decrease in personal sector spending. The result is that
the government borrows excessively, which raises the cost of loanable money (interest rates),
discouraging the private sector (firms) from undertaking capital expenditures due to the high cost
of borrowing. This subject is viewed negatively since the economy will decline swiftly if enough
businesses or individuals become discouraged as a result of the coming in and going
phenomenon.
