The Impact of U.S. deficit, Surplus and Debt
The gross domestic product is simply written as illustrated below where;
C – Consumption, I – Investment, G – Government spending, X- Exports, IM - Imports
GDP = C+I+G+ (X – IM)
Therefore, a U.S. budget deficit, surplus, and debt have different effects on Phoenix University student and exporters such as the domestic automotive manufacturers such as general motors and ford. More exports are favorable than imports as they add positive value to the GDP. To begin with it is crucial we understand what the three phenomenon mean. A budget deficit occurs when government spending surpasses revenues collected from taxation. A surplus occurs when revenues collected surpass government spending, and lastly debt refers to accumulated deficits that are recorded in government accounts overtime.
When the economy is experiencing a deficit, the excessive spending is added to the debt which increases interest rates and lowers the nation’s credit rating. Therefore, a debt and deficit have the impact of raising interest rates on a Phoenix university student loan. Since the loan is subsidized, the government may be forced to cut the debt and deficit by ceasing to offer new student loans to individuals who have qualified. On the contrary, a surplus would have the opposite effect since it is an indication of a healthy economy, which means the government can pay interest on its treasury bonds, which translates to lower interest rates and easy access to student loans.
During periods of high budget deficit and debt, high interest rates increase cost of production and the automotive industry experiences competitive disadvantage compared to their foreign counterparts. This leads to a decline in sales and employment, further causing a trade deficit that drives the economy into deeper debt. On the contrary, a budgetary surplus, which is an indication of a healthy economy, means lower interest rates and low cost of production for the automotive industry. The industry gains competitive advantage over its competitors and exports more automobiles. This translates to increased employment. For instance, the U.S. exported cars worth $ 49.6 billion after the government injected the stimulus package into the economy and bailed the automotive industry.
