Eco 372 - Principles of Macroeconomics

Fiscal Policy

ECO372 Principles of Macroeconomics

Instructor: Sam Pirnazar, PhD

March 17, 2013

Fiscal Policy

Our current economy is the result of not only poor decisions by the government but also because of several other factors, which include globalization and technology. With each of these contributing factors affecting the United States' economy, the U.S.'s deficit, surplus, and debt have affected our society on both a national and international level. The United States has the highest debt in the world with a debt level of 95% of the GDP. The debt ceiling is $14.29 trillion, (Kwiatoski, 2011). Nationally, tax payers and future users of Social Security and Medicare, unemployed individuals, and our Gross Domestic Product are experiencing several negative effects. As a result of those negative effects on the United States nationally, our economy has also contributed to several downstream effects, which affect the U.S.'s position within the export and import markets internationally.

Future Social Security and Medicare Users

The United States looming debt could lead to cuts and changes to programs like Social Security and Medicare. Social Security is paying more money out in benefits each year than it is taking in. In an attempt to keep Social Security solvent and reduce the growing deficit the government has looked at many options, including lowering the money paid out to individuals considered high income earners and rising the age of retirement. Another option is to increase the retirement age, which would mean that Americans would have to wait longer before they were eligible to receive benefits. Medicare supports individuals that are disabled, poor, or elderly. People who rely on Medicare can be required to pay more money out-of-pocket for co-pays on doctor's visits and prescriptions. Medicare can be required to reduce the types of services offered to patients. States could also receive less money for Medicare programs each year.

University of Phoenix student

Most college students apply for some sort of financial aid to continue his or her education.

A high deficit can mean higher interest rates that can affect a student with student loans as well as consumers. Student loan programs could be cut to help budget deficits considered uncontrollable. The effect of a surplus and debt on a college student can also mean higher tuition rates and fees paid by students. By the time student's graduate from college, most will be in debt that may take more than five years to payoff. Many college students are experiencing difficulties to repay their student loans. Outstanding student loans were estimated at one trillion in December 2011 (Madison, 2011, p. 1).

Unemployed individuals & Taxpayers

As unemployment raises the U.S.'s deficit and the value of the dollar is declining the economy suffer. Unemployment is high and generating higher debt for our country. People unemployed stop paying taxes, and without taxes we can be in a much worse cycle than we are today. Without the capability of the consumer to spend, the economy slows down, producing additional decreases in employment and a constant problem within our economy. It hits the retail industry because people stop shopping and spending, this creates financial problems for local businesses.

U.S. Financial reputation on an international level

A major problem with the United Stated financial reputation on an international level is the fiscal year and trade deficits. Most of the products purchased in the United stated are imported. Government excess spending in revenue creates a deficit, when the government spends less there is a surplus. Some economists believe a deficit helps stimulate economies and countries recover from recessions. Experts argue that government should lower deficits because instead of paying interest rate, the money could be spent on other sectors. One solution to reducing the national debt is to spend less and produce more revenue in the state balancing trade.

Domestic automotive manufacturing (Exporter)

The government helped the automobile sector with billions of dollars between 2008 and 2009. The Automobile sector is an important element of the United Stated economy because Americans will repay their auto debts, also in provides jobs and stock exchange increases. Every job created in the automobile sector helps to support the economy, is estimated of the workforce in the world come from the automobile sector. General Motors, Ford, Honda, and Toyota are some of major workforce in the United