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Finance & Accounting
Pages 5 (1255 words)
The economic recession which broke out in the middle of 2008 had resulted in a wave of debt in several advanced economies along with the USA. When government spends more money compared to the amount it receives through tax, it requires borrowing to cover the gap. …
The economic recession which broke out in the middle of 2008 had resulted in a wave of debt in several advanced economies along with the USA. When government spends more money compared to the amount it receives through tax, it requires borrowing to cover the gap. Organisation for Economic Co-operation and Development (OECD) has predicted that government debt will increase seriously by unmaintainable levels in advanced as well as emerging economies within next 25 years. It is estimated that the standard principal deficit in the USA will be 2% of total Gross Domestic Product (GDP) in 2015 and will increase to 7.7% of total GDP by 2035. The baseline debt of the USA was 65% of total GDP in 2010, which is estimated to become 213% by 2035 (Gagnon & Hinterschweiger, 2011). Budget deficit occurs when government expends excess amount compared to what it gains through taxation. The opposite term of budget deficit is budget surplus when the outgoings are less than the receiving amount (Investopedia ULC, 2011). Even few years back, the US had budget surplus but due to the impact of the crisis in present days the US economy is running with budget deficit of 10% on GDP. It is expected that the budget deficit will decrease to 7% of GDP and by 2017 the government will seek to reduce the budget deficit to 3% of GDP (Paletta & Boles, 2011). Deficit reduction plan is helpful for advanced economies to deal with the economic recession. Several nations have implemented the debt reduction strategy to maintain a justifiable fiscal budget and to reduce the debt. ...
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