Budget Deficit

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Budget Deficit

Introduction

According to Label (year) Budget is a planning tool that help governments, organizations and project developers in outlining the future expectations in a quantitative manner. Budgeting is forecasting tool which is used to predict the results that will arise in the future. Governments provide budgets on yearly basis to provide the public view of the government spending and the revenues in the years to come. If the government expenditures increase more than the revenues then it is a situation where the economy faces budget deficit. The report will be conducted on the thesis statement will be, how budget deficit affects the economic growth, causes of the budget deficit and do monetary and fiscal policy play any role in controlling the budget.

Discussion

A critical analysis of the budget deficit will be performed in the following manner: first it will analyze by considering the American budget deficit that how it has affected the economic growth of the country. According to a research by Rahman (2012) there is a negative relation between the variables budget deficit and economic growth. In order to investigate the relation the researcher used four variables that are GDP, government debt, productive expenditures and non-productive expenditures. US economy is currently proving the research of the Malaysian researcher Rahman very true as it there is increase in the budget deficit, which has increased debt of its government and US has 90 percent of GDP in debts which clearly shows that the economic growth is declining.

According to Mac Guineas (et al., 2011) they analyzed the increasing budget deficit of the United States of America in 2011 is around $ 1.5 trillion which is about 9.8 percent of the GDP. The authors have given their view that if the budget deficit of America keeping on increasing then there are serious threats to the economic progress of the country. According to the authors the government needs to take quick decisions in order to convert the consumption driven budget to an investment oriented budget. The economists have given their in their article that the increasing budget deficit will have two outcomes; first will be the increase in the interest rates that will easily pull investment out of the American economy and second impact of the increasing deficit will lead towards an increase in the amount of borrowing from other nations of the world which will directly have an impact on the exchange. The dollar rates will increase which will also end the international market of the US products due to increase in their prices. IMF gave their view that US is currently having an unsustainable budget which is affecting its market competitiveness in the whole world and if no actions are taken financial experts view that US can economy can become similar to the Greece or Argentine's economy.

The sustaining budget has led towards growing debt burden of the US government and when debt increases financial experts have given their view that the government resources are ...