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Chapter 1: Q.14 (page 66)

How does the current size of the U.S. budget deficit compare to the historical budget deficit or surplus for the time period since 1950?

Short Answer

Expert verified

Since 2007, it has grown tremendously. The deficit to GDP ratio in 2010 was 110 percent, far higher than the historical norm of roughly 2% since 1950. In the year 2021, the deficit to GDP ratio was 12.1%.

Step by step solution

01

Step 1. Introduction

A budget deficit develops when expenditures exceed revenue, thus damaging a country's financial health. When discussing total economic spending rather than the budgets of enterprises or individuals, the term "budget deficit" is commonly used. The national debt is made up of fiscal shortfalls.

02

Step 2. Explanation

Since 1950, the ratio has averaged over 1% to 2% until 1983, when it grew for a while before beginning to plummet until the early 2000s. Following the 2007 financial crisis, the ratio skyrocketed to between 9% and 10%.

In the year 2021, the deficit to GDP ratio was 12.1%. While in year 202, it was 15%.

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Most popular questions from this chapter

Go to the St. Louis Federal Reserve FRED database and find data on the M1 money supply (M1SL) and the 10-year treasury bond rate (GS10). Add the two series into a single graph by using the “Add Data Series” feature. Transform the M1 money supply variable into the M1 growth rate by adjusting the units for the M1 money supply to “Percent Change from Year Ago.”

a. In general, how have the growth rate of the M1 money supply and the 10-year treasury bond rate behaved during recessions and during expansionary periods since the year 2000?

b. In general, is there an obvious, stable relationship between money growth and the 10-year interest rate since the year 2000?

c. Compare the money growth rate and the 10-year interest rate for the most recent month available to the rates for January 2000. How do the rates compare?

When interest rates decrease, how might businesses and consumers change their economic behavior?

When there is an increase in the value of the European Union’s euro, all else equal, how will American businesses be affected? What will happen when there is a decrease in the value of the American dollar relative to the Japanese yen, given all else is equal?

In Exercise 1, you collected data on and then graphed the Dow Jones Industrial Average (DJIA). This same site reports forecast values of the DJIA. Go to http://www forecasts.org/data/index.htm, and click on FFC Home at the top of the page. Click on the Dow Jones Industrial link under Forecasts in the far-left column.

a. What is the Dow forecast to be in six months?

b. What percentage increase is forecast for the next six months?

How can changes in foreign exchange rates affect the profitability of financial institutions?
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