The U.S.

Deficit, Surplus, and Debt Effects

The U.S. Deficit, Surplus, and Debt Effects Team Members ECO372 Date Instructor Name

The U.S. Deficit, Surplus, and Debt Effects

The U.S. Deficit, Surplus, and Debt Effects Anytime there is a deficit, surplus, or debt there is someone or something it affects. There can either be too much, too little, or money owed to someone. When something like that happens, examples of people affected are taxpayers, future Social Security and Medicare users, unemployed individuals, students, the United States financial reputation, exporters, importers, or the GDP. The U.S.s deficit, surplus and debt have an effect on all taxpayers in one way or another. The fact that a deficit will increase the debt of the U.S., and one deficit and debt does have the same effect on the taxpayers. So there are four different areas which the debt and deficit affects on the U.S. taxpayer: higher taxes, reduced benefits/ programs, higher interest rates, and a weak dollar. The one thing these all have in common is less money in the taxpayers pocket, and this cause less money to be able to be spent or invested (How the U.S. National Debt Affects You, 2012). When the U.S. runs a surplus it can have different affect on the taxpayer, and is really decide on how the government decides to use the surplus. There are different way that the government choices to spend the surplus. They can spend the money to pay down the debt. The government can choose to also to give the taxpayer a refund of some manor. The effect in the short and long run means more money in the taxpayers pocket which means increase in money for spending and investment (Hall, 2012). Medicare contributes to the deficit under the Medicare Insurance (part B) program. Medicare is an important part of the US public spending and no matter how the deficit is

The U.S. Deficit, Surplus, and Debt Effects

calculated. (Newsgroup, 2012). Social security expenditures exceeded non-interest income in 2010 and 2011. The first such occurrence since 1983 and the deficit of non-interest income relative to expenditures were $49 billion in 2010 and $45 billion in 2011. Patients are spending more on health care then the system allows and is costing the government billions of dollars each year. Social Security and Medicare programs equaled 8.5% of the GDP. Unemployment has a big effect on the deficit because the government is paying more benefits than they are bringing in revenue. Surplus employment is caused when minimum wage laws and unions are selling a higher level than companies have to lay off employees to meet the pay roll budget. Unemployment adds to the US debt because more need help paying bills, food stamps, Medicare and all of these contribute to the US debt (USEconomy, 2012). The U.S.s deficit, surplus and debt have an effect on University of Phoenix student in the fact that the increase in debt means less money for benefits or government program. Money that is used for education for low income students come from government spending. This money comes from taxes. When the tax money has to be spent on paying down the debt and decreasing the deficit there is less money to be spent on education. One of the cuts that has occurred from the cuts in spending is the limit that a student a student can get in Pell grants over there life time. This affect the students and the University of Phoenix more because a large number of student who are going to school on line who are adults. This important in the fact that some of these adults have went to college when they were younger and are now needing to return to school and do not have enough money left in their limit for the Pell Grant to allow them to finish and they do not have the money to pay for school on their own. The increase in

The U.S. Deficit, Surplus, and Debt Effects

interest rates makes the cost of repaying the loans higher. This is information that I know from being one of these students. Another effect is started back when Ronald Regan was in office. During his term if children were drawing Social Security benefits from their parents and turned 18 between graduating High School and starting college in the fall lost their benefits if they were not already taking college class. At this time the benefits stop when you graduate high school. In the case of a surplus the Government has more money to spend on government spending and more money for on education as well as other government programs. The lower interest rate lowers the cost for repaying college loans. The U.S.s deficit, surplus and debt have an effect United States f inancial reputation on an international level because as we studied before all countries would like to have a higher GDP instead of a lower one, so many countries require their net trades to be in the positive. It is highly unlikely for all countries exports to be in the positive margin since the countries import has to be much greater than export for the country. An example of this could be the when the US purchases imports from China, the US GDP and rate of employment will decrease but the Yuan (China currency) increases. As the worldwide economy has developed, and rivalry and trade deficits have ascended out of control, many in the industrial world have taken action to stabilize the scales so to speak and offer the same chances for all of the trade partners involved in international transactions. One example of this action would be the North American Free Trade Agreement, or NAFTA. NAFTA's purpose is to generate a trade balance, but many side effects have occurred this is especially true in the United States auto industry. Theoretically, NAFTA, when first disclosed,

The U.S. Deficit, Surplus, and Debt Effects

provided a great deal of potential; nevertheless, in the final enquiry, after the program took place, the results proved to be just the opposite. Quite possibly the most imperative lesson to learn from this situation is that free trade is never totally free-someone always pays. Unfortunately, in this case, the US automobile industry has been forced to foot the bill. An Italian importer of clothing will have a higher demand for their goods if the country maintains a strong economy with little debt, when a country has a stronger economy the demand for imports increases (Colander, 2010). However, if the country has a great deal of debt the demand for imports will fall because of the weaker economy. Deficits drive up inflation, which reduces the value of the dollar and increases the demand for imported goods. This will increase demand for the clothing imports and drive up business (Colander, 2010). In contrast, a surplus will decrease inflation driving up the value of the dollar, which will bring the demand of imports down. Importers rely heavily on the status of the dollar in the world market to base decisions on whether to import their goods. If the value of the dollar is too high compared to the rest of the world importers will simply not have a chance in succeeding. The Gross Domestic Product (GDP) is a measure of all the goods and services an economy produces for a specific one-year period (Colander, 2010). The United States deficit, surplus, and debt have a specific effect in relation to the GDP. Even when debt and deficits increase the severity of the economic problem rests in the relation to the GDP. When the ratio of debt to GDP is lower the economy grows stronger, even if the debt is growing larger. If the ratio remains the same or reduces this is an indication of the economy growing and maintaining its balance. Economists generally look at the ratio of debt, deficit, and surplus to GDP rather

The U.S. Deficit, Surplus, and Debt Effects

than these factors on an individual level (Colander, 2010). Doing this allows to evaluate the economic status relative to the size of the entire economy rather than one small piece. So an excess or deficiency of something can be a good thing or a bad thing depending on who it is affecting. It affects everyone from taxpayers, students, and the government. There needs to be a balance so that the damage is not so great and so that it is beneficial to all parties.

The U.S. Deficit, Surplus, and Debt Effects

References

Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin. Hall, S. (2012). How Does a Government Budget Surplus Affect the Economy? Retrieved August 16, 2012, from EHow: http://www.ehow.com/about_6193482_government-budgetsurplus-affect-economy_.html How the U.S. National Debt Affects You. (2012). Retrieved August 25, 2012, from nodebttoday.com: http://www.nodebttoday.com/how-national-debt-affects-you.php

USEconomy. (2012). Retrieved from http://useconomy.about.com/