Free Decreasing The Government Spending Is Not Necessarily To Decrease The Deficit Essay Example
It is expected that decreasing the government spending decreases the budget deficit. This assumption might be true under some certain conditions. Changing the government spending might fulfill the expectation if the decreasing government spending does not develop a negative influence on the economy.
Decreasing the government spending will decrease the demand in the markets because the government is the largest agent in the economy with the public resources. Thus, the decrease means that the government will buy fewer amounts of goods and services from the markets, and it might cause the demand for the products and the services.
Secondly, the decrease in the government spending might give a signal to the other agents in the economy expressing that the government is not supporting the economy; therefore, if the agents believe that the economy is not sustainable without a support from the government, they might start relatively worse expectations about the economy. As known, the negative expectations in the markets lead the agents to the markets to decrease their consumptions, and the demand might go down.
Thirdly, if the markets mechanism does not work efficiently, decreasing the government spending might get a strong recession response from the markets. In another word, if the markets cannot create enough for the products and the services, then the decrease in the government spending might cause a demand-sided crisis.
Following the ideas explained above, it is possible to claim that the decreasing government spending might decrease the demand in the markets. In another word, the private spending might decrease in the markets. Considering that the lack of demand might not be enough to correspond to the aggregate supply in the markets, the decreasing demand might create disequilibrium in the markets. The suppliers might respond to this change by decreasing their production. Consequently, the suppliers might need to decrease the size of their production.
When the production decreases in the country, and then the companies might fire some workers. As a result of this, we might face an unemployment problem. The contribution of these workers will be lost. Also considering that the production decreases, the contribution of the companies to the gross domestic product will decrease. Consequently, the corporate profits and the individuals’ incomes will decrease in the economy.
Considering that the government balance depends on the incomes of the government and the government spending and the government’s incomes are collected from the companies and the individuals as corporate and income tax, the decreasing profits and incomes mean decreasing taxes and decreasing government incomes.
Before decreasing the government spending, a group of economists have to be assigned to monitor the macroeconomic variables in the economy and check the economic conditions whether it is suitable to decrease the government spending to balance the government budget.
Also, it is possible that the expectations of the individuals in the economy play an important role in the budget deficit. If the people do believe that decreasing the government spending might develop a negative influence on the economy, and then even if the market mechanism works perfectly, it is possible to have decreasing incomes in the economy. As a result of negative expectations in the economy, the budget deficit might increase as a response to the decreasing government spending. Consequently, decreasing the government spending does not guarantee a balanced budget. We have to have special conditions for providing this.