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Markets and the Economy - Essay Example

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Assignment #2 Markets & the Economy Name: Institution: Explain how an increased federal budget deficit resulting from a recession can help stabilize an economy? Budget deficits are one way to determine the state of the economy of a given government. In some cases, it is possible for a given economy to have massive deficits yet the economy is doing well…

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Markets and the Economy

Similarly, there is less corporate income tax revenue. The loss of jobs will cause the government to invest in programs such as unemployment insurance. The government spending does rise in an effort to provide for its citizens during tough times. The government spending rises due to the increased use of available programs and the formulation of new programs to help the citizens. According to Cashell, this increase in government spending and the additional spending that is due the additional programs created the economy then grows at a faster rate enabling a stable economy to be achieved (2005). This increase in government expenditure is usually during a time that the government has no matching rise in tax receipts. It is possible for the economy to rise by more than the initial increase in government spending. This form of government spending does have a multiplier effect (Cashell, 2005). Describe how adjustment in prices and the wages transform the economy from the short run equilibrium to the long run equilibrium? In the long run equilibrium, the economic growth is dependent on three factors the growth in labour force, amount of capital available to the work force, and the rate of technological advance. ...
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