W3-macro-Peer Response

Participation Expectations.	Thomas Westover	4/17/2016 12:00 AM
In order to be eligible for the maximum score on this graded activity, the initial response to the discussion questions must be at least 200 words and be suitably supported (citations) with material from our our assigned textbook readings.  Subsequent comments to other students must "add value" to the discussion and should be approximately 100 words each in order to be considered "substantive" and therefore eligible for the maximum score

APA FORMATTING NOT NEEDED : Please keep the two post separate

Discussion Post #:1

Government Fiscal Policy

Between 2007 and 2009 the U.S. economy experienced a severe recession.   In an effort to stimulate the economy, the federal government passed a stimulus package. Explain the federal government’s use of fiscal policy (the stimulus) to promote growth and employment.  Support your ideas with concepts found in the assigned reading. Include the following in your response: · Discuss some actions taken by the federal government and whether the recession would have been longer and the unemployment rate higher if the government had not acted by passing the stimulus package?  · If left alone, do you believe the economy would have corrected itself as suggested by Classical economic theory?  Explain. · Discuss the effect these policies had on increasing the size of the budget deficits and the national debt. Reference:  Chapter 9, section 9.4: More Recent Tax Changes, and Chapter 10, section 10.2: Early 1990s and 2000s Recessions. Guided Response:   Review the discussion board posts of your classmates.  Respond to at least two of your classmates by agreeing or disagreeing with their posts. Support your ideas with concepts found in the assigned reading Carefully review the Discussion Forum Grading Rubric for the criteria that will be used to evaluate this Discussion Thread.

Peer Response #1: KS

Actions taken by the government in order to provide assistance during the recession, as explained by Amarcher (2012), “the government had arranged an unprecedented $700 billion bank bailout known as the Emergency Economic Stabilization Act of 2008 and passed a $787 billion fiscal stimulus package known as the American Recovery and Reinvestment Act of 2009” (Chapter 9, section 5). During the recession that occurred from 2007 – 2009, the government took action that placed a “Band-Aid” on our economic wound to minimize the bleeding or impact. By implementing the stimulus package it provided us a temporary stop on the potential downstream impacts to other things such as a continuing increase on unemployment and small business going out of business. Amarcher (2012) explains, “Faced with a recession, different countries respond with different policy mixes, based on their own situations and their own values. Economic theory can tell you how the economy will respond to a particular policy, but it cannot tell you which policy to choose and implement” (Chapter 9, section 3). It is no surprise however, that the tremendous amount of debt that this bailout cost is still being repaid and will be for many years to come as it increase the budget deficit and national debt. During this time, I was working for Bear Stearns which was impacted by the U.S. housing bubble, and I got to witness firsthand the massive amounts of layoffs that were occurring. Due to this strategic plan, many people were able to continue feeding their families through unemployment benefit, or keep a job as other companies were bought out by larger companies (Chase and Bear Stearns) to keep the market going.

Unfortunately, I strongly believe that the economy would not have been able to re-cooperate on its own and it would have lasted much longer without the assistance of the government. If the stimulus package wasn’t received, may car manufactures would have gone out of business, many people would have been without a job, business would have been laying off as demand for products would not be there, people would stop spending money and start saving it.

 

Reference:  Amacher, R., Pate, J., (2012).  Principles of Macroeconomics.  San Diego, California: Bridgepoint Education, Inc.

Peer Response #2:SB

The stimulus package that was passed included a part that gave “130 million U.S. families and individuals tax rebates which were considered mainly a bust, because recipients either put them in savings or paid of credit cards” (Amacher & Pate, 2012). This did not stimulate the economy the way it was set up to do. I do believe without the package and rebates it would have taken the economy a lot longer to recover. Another part of the package was the aid for struggling dairy farmers. The dairy price support system raised the prices on cheese and milk, which helped the struggling dairy industry offset prices. “The cost of the spending program benefited the farmers at the expense of the dairy consumer” (Amacher & Pate, 2012). The package also out the automotive and banking industry by giving them money. In layman’s terms and the best way I can explain the purpose of the package is that they money that was given to companies made it possible to purchase the said vehicle without raising interest rates. Same with bank loans, because after the bailout it was easier to get a loan at a lower interest rate. The money that was kicked back to the public in terms of tax rebates made it possible for the consumer to go out and purchase new items, which helped the economy grow, because as items get purchased, new items have to be made by someone. This lowers the unemployment rate because you are hiring people to make products. I do not think that the economy could have recovered as quick without the stimulus package because it was “intended to save and create jobs almost immediately, as well as provide relief for those most affected by the recession. It also proposed to invest in the country's infrastructure, education, health, and green energy. Although the National Bureau of Economic Research marked June 2009 as the end of the Great Recession, lingering effects such as high unemployment continue to plague the United States well into 2012” (Amacher &Pate, 2012).  Without this extra spending I believe the recession would have been longer and unemployment would have continued to raise. According to Amacher (2012), “Classical economists believed that the interaction of labor supply and labor demand determines the real wage and the level of employment. The level of employment then determines how much total real output will be produced (output being the amount of goods or services produced in a given time period).” It stated in the textbook that classical tradition consider fiscal policy of limited benefit, whereas Keynesians regard it as a valuable tool for stabilizing economic activity. With that being said, I do not believe that the economy would have corrected itself without the fiscal policy.

                How did the fiscal policy effect deficit and debt? A deficit is a basically what is left over if we take what the government makes and spends. If it is positive it is a surplus, but if negative then it will be a deficit. Let’s take this example: The automobile industry got a bail out, I buy car, I register and pay taxes, these taxes go back to the state who now owes federal taxes. So the bailout made it possible to basically boost the whole economy.

References Amacher, R., Pate, J., (2012).  Principles of Macroeconomics.  San Diego, California: Bridgepoint Education, Inc.

Discussion Post # 2:

Budget Deficits and the National Debt

Between 2007 and 2011 the federal budget deficit grew from $160.7 billion to $1,299.6 billion, and the national debt grew from $8.9 trillion to $14.8 trillion. (Figure 10.1: The ratio of debt to GDP, 1977-2011.) 

In your post, differentiate the budget deficit from the national debt.  How do you think the increases in the budget deficits and the national debt will affect the economy in the future?

Reference: Chapter 10, section 10.1: Debt and Deficits, and section 10.4: Do Deficits Matter?

Guided Response: Review the discussion board posts of your classmates.  Respond to at least two of your classmates with questions that allow them to extend their thinking.  Support your ideas with concepts found in the assigned reading.

Carefully review the  Discussion Forum Grading Rubric  for the criteria that will be used to evaluate this Discussion Thread. 

Peer Response #1:CB

According to our text book the difference between the budget deficit and the national debt is: Budget Deficit , is the spending of funds exceeds its revenue in the given fiscal year ( October 1st, to September 30th )  and the National Debt is a cumulative of past budgets deficits, funds that are owed to lenders from the government. "A deficit is the amount by which the federal government's expenditures exceed its revenues in a given year (the fiscal year, which runs from October 1 to September 30). The national debt is the cumulative total of all past budget deficits minus all past surpluses. It is the amount owed to lenders by the federal government." ( Amacher & Pate , ch 10.1 ) I am actually worried that the budgets will stack on, as time goes by. You have to consider different elements such as the presidency and the government making choices to borrow money.  And look at the chart in chapter 10.1 , it shows that in time it increases making a hole in the wall. It is true, that there are some slight declines in the deficit, however I feel that there should be a policy where if the government is already high in debt to avoid any time of borrowing further. It is true, local business are going to want to avoid being in bankruptcy, but there should be other alternatives. Perhaps, maybe raising taxes on certain things can be the answer to pay off any debt, but then we are back to a fallen economy such as the markets, and health insurances.  If taxes or interests will be raised it will discourage spending, which defeats the purpose in attempts to repay debt. Imagine, our future where you have to think very carefully about going back to school because of that high interest rate of a loan that is followed by it. Or high APR rates, for our basic credit cards, or even loans. It will be hard to get by, in my opinion an action like that will discourage spending, or purchases. Perhaps, more employment , may be the answer.. Correct me if I am wrong, but more people in work may equal to more taxes being payed out of our wallets that may be of help.  References Amacher, R., Pate, J., (2012).  Principles of Macroeconomics.  San Diego, California: Bridgepoint Education, Inc.

Peer Response #2:CT

The budget deficit is the shortfall between what the government spends during a single year compared with what it brings in during that single year. The national debt is the accumulation of all the budget deficits for every single year since the United States has been in existence. (The table in 10:1 shows since 1977) (Amacher & Pate, 2012).  

               Initially the deficit spending boosts the economic growth especially during a recession because deficit spending pumps liquidity into the economy. The money can go to building equipment for the military, bridges or education; it ramps up production and creates jobs.

However, in the long run the debt is damaging to the economy but not just because of the high interest rates. The Government may let the value of the dollar fall so that the debt repayment will be cheaper in dollars and less expensive. As this is happening, foreign government and investors will be less willing to buy Treasury bonds, forcing interest rates to go even higher (Amacher & Pate, 2012).

The greatest concern comes from the debt to Social Security. This debt comes due when Baby Boomers retire; funds will need to found to pay them. Not only could taxes be raised, which would slow the economy, but the loan from the Social Security Trust Fund will stop. More and more of the government's spending will need to be devoted to pay for this mandatory cost. This would provide less stimulation, and could further slow the economy. .

Reference:

Amacher, R., & Pate, J. (2012). Principles of Macroeconomics. San Diego: Bridgepoint Education, Inc.

Two Separate Discussion Post

Must Complete both and use the classroom text as well