ECO 372 Weekly Reflection Week 4

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  • ECO 372 Weekly Reflection Week 4
  • ECO 372 Weekly Reflection Week 4
  • ECO 372 Weekly Reflection Week 4
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Deficits are a shortfall of the revenues under payments or expenses. An example of a deficit would be that the consumer income is $60,000 but the consumer has expenses of $70,000. The consumer has a deficit of $10,000 . The government has a large amount of deficit for example in 2009 revenues were $2,159 (in billions) while the expenditures were $4,004 (in billions) resulting in a -$1,845 (in billions) deficit.

For the consumer to rise above the deficit a higher paying job would reduce the deficit. Another way would be to reduce spending until the deficit is no longer present. If the consumer reduces the spending then this will over time reduce the productivity and cause an increase in unemployment. This will cause the debt to be higher.

ECO 372 Weekly Reflection Week 4

**INCLUDES SPEAKER NOTES AND SLIDES**

The government must pay for products and services received. When the government has a deficit, bonds are created to sell to the public in order to obtain funds for paying for the products and services. . It is essentially loaning the government money to pay for the debt incurred. An IOU at the bank is nothing more than cash. The government could also print money in order to repay the loans that would cause the deficit to decline, but this would cause an inflation in the economy. The government makes a great attempt to not print more money because by doing so will cause would have a negative impact on the economy.

A deficit can be difficult to determine because accountants calculate the revenue and expenses one way and economist calculate it a different way. This is because included in the deficit are the promise to pay expenses such as Social Security, which is a payment received now for a payment in return in the future. Accountants would record it as a revenue received annually but not recording the expense until the payment is actually made. The expense is t subtracted form the revenue until it is physically paid. The other way to record it would be to record it as a revenue now and expense it now rather than waiting until the payment is made in the future. There is no clear right or wrong way to calculate it which makes it difficult to determine the actual deficit.

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