1. What fiscal policy was used to combat the great recession(2007-2008) experienced? Did the...


1. What fiscal policy was used to combat the great recession(2007-2008) experienced?

Did the policies work?

2. Discuss the size and consequences of the U.S. public debt.

What is the current amount of public debt(as of today's date)?

3. Does the large amount of public debt threaten to bankrupt the federal government or future generations? Explain your answer.

Public Debt

The total borrowings of the government constituted as public debt. High public debt cause damage to the economy. According to various modern economists, high public debt is the result of the use of Keynesian economic policies by the government to boost growth.

Answer and Explanation:

1) To combat the great recession of 2007-08, the United States passed the Economic Stimulus Act of 2008. The act includes Keynesian measures like increasing government spending and cutting down of tax to boost the growth in the economy. Yes, the policies have worked. The United States has witnessed quite a good growth after adopting Keynesian measures. The unemployment rate also started recovering. However, wages increased marginally, and people once again started feeling the heat of recession in the economy.

2) It is true that with a large amount of government spending and tax cuts has lower down the revenue of the government. The size of the current US debt is $22 trillion, which is quite huge. Since the public debt in the US is as much as its GDP, there is a higher probability that this huge public debt will weaken the economy of the US in future. High public debt diminishes the capacity of the economy to absorb economics shocks.

3) It is obvious that large public debts pose a threat to the bankruptcy of the federal government, banks and future generation. When people fail to repay the debt, the economy of the country will fall. The banks would start facing the crisis of Non-Profitable-Assets. The high NPAs would obstruct new investment in the economy due to which employment rate would be negatively affected. Hence, future generations would suffer due to current high public debt.

Learn more about this topic:

Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7

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