Economics

Economics

Introduction

The following assignment will discuss the effects of various factors on the economy of the country.

Discussion

The Economic Effects of Increases in the National Debt

The national debt is the sum of the budget deficit for the current period plus the interest that you are paying for the securities issued in previous periods in order to finance the previous budget deficit.

The possible negative effects of national debt are

a) Cases of Acquisition of Shares by Foreigners

Even assuming valid the Ricardian proposition, the presence of debt in the economy will not be neutral if the bonds are purchased abroad because while the interest on the bonds will be enjoyed by foreign nationals, the additional taxes, sooner or later introduced to deal with the debt, will fall on the residents; (Mankiw, 2011)

b) The Crowding-Out Effect

The gradual increase of the state securities market of financial assets, make it increasingly difficult for the private sector access to savings for their investments;

c) The Increase in Taxes

Could lead to a depressive effect on the economy, a disincentive to investment and employment;

d) The Intergenerational Transmission of Debt

Future generations will suffer the repercussions of a hefty debt occurred at times when they were not even born.

If there is a deficit, in fact, there is a public expenditure that can be directed in various intervention programs (health, social security, education, the environment, incentives, supported employment, etc.). Evaluation of the results of these programs is very difficult because of the enormous implications of not strictly economic (sometimes not economic in nature), so the overall result of state intervention in the economy is no longer a political assessment that macroeconomists (Mankiw, 2011).

Effects of Import Tariffs and Quotas on Economy

Import tariffs hurt the country which imposes them. In most of the circumstances, their costs are much larger than their benefits. Tariffs are imposed to help the domestic producers. When import tariffs are imposed, the competition in the country falls. As a result of the reduced amount of competition, the prices of the products increase. The sales and the consumption of the domestic products also rise. The increased prices and the increased production force the domestic producers to hire more workers as a result of the increased demand of the products. This causes an increase in the consumer spending. The government revenues increase as a result of the tariffs imposed. This can be useful for the economy of the country. When the prices of the domestic products increase as a result of the import tariffs, the consumers are forced to buy less of the products. The act of buying less of the products can give the impression that the consumer income has reduced. As the consumers buy less of products, the domestic industries will be selling less, and this will cause a decline in the economy of the country (Mankiw, 2011).

Economic Effects of Lack of Trust on Government

If the citizens of a country do not trust the government to provide them with better jobs and employment opportunities, then the economy will suffer from ...