Discussion Responses

Responding to Kari Padilla

Hello,

Thank you for your post. I am glad to see how you approached the debt fixer simulation, especially on prioritizing defense spending. Further, I noted that your simulation prioritized healthcare expansion, which provides several healthcare options to veterans that assist them in addressing unique medical requirements. In my case, I paid more attention to entitlement reforms and tax adjustments for long-term fiscal sustainability: Discussion Responses.

Also, I sought to balance cost-cutting for social programs. Indeed, I agree with you on maintaining retirement age at 65. However, I wonder whether it is high time to consider shifting the retirement age upwards because of the increasing life expectancy.

Notably, this is so because I believe a gradual increase in retirement age will aid in maintaining solvency for social security. Drawing from the article by Jeff (2024), long-term economic sustainability should be reflected in sustainable adjustments across the economy such as the social security sector. Thank you for sharing such an insightful post.

Reference

Jeff., C. (2024). CNBC News. The economic outlook for 2025 is strong, but there’s still a lot that could go wrong. https://www.cnbc.com/2024/12/27/the-economic-lookout-for-2025-is-strong-but-plenty-could-go-wrong.html

Responding to Adrienne Foster

Hello,

Thank you for sharing your discussion post with us. Your perspective on the national debt and the crowding-out effect is insightful. It is in line with my take that debt should be minimized; It is the basis behind my simulation that promotes spending reductions. Your decision to cap defense spending growth is a notable way of controlling costs.

However, I wonder if reducing wasteful entitlement programs couldn’t be another crucial way of reducing expenditure. I agree with you that excessive debt at the national level can negatively influence borrowing costs. The International Monetary Fund recommends a sustainable debt-to-GDP ratio of 60% for this reason (IMF, 2023).

Since the U.S. has exceeded this level, more attention should be given to long-term debt risks. Regarding the crowding-out effect, I agree with you that it should align with economic principles, whereby the government should not absorb too much capital. Notably, this is so because it can diminish growth for the private sector, leading to increased unemployment rates.

Reference

International Monetary Fund (IMF). (2023). Debt Sustainability Analysis: An Overview of

            Methodology and Implications for Fiscal Policy. https://www.imf.org

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Create a response to Adrienne Foster’s post below.

Hello class!

In this simulation, we got change to change some foreign policies around to try and reduce the governments debt. The options I chose were to make tighter border security, to allow veterans to seek other modal providers than just the ones the VA allows, and lastly, to limit annual defense spending growth to 1%. I unfortunately wasn’t successful in decreasing debt amount.

Personally, I always believe going into debt is bad, and I blame that on how I was raised. I personally think when the country goes into higher national debt it is a very risky situation to be in because many things could happen including, the country running a risk of defaulting, future tax burdens on the country, driving up interest rates for borrowers making companies and households suffer as well. According to my research from The American Leader the ideal debt to GDP ratio is 60%.

The crowding out affect is the one the most well known economic theories. This theory states that an increase in government spending decreases private sector spending. Interest rates go up due to the government borrowing money to fund their spending and that makes it hard for businesses and individuals to borrow due to spiked interest rates. Economic growth is negatively affected because it makes it more diffuse for private entities to borrow, which is a key factor in economic growth.

references

Mankiw, N. G. (2024). Principles of economics (10th ed.). Cengage Learning.

Linzer, G. (2019, November 5). National Debt. The American Leader. https://theamericanleader.org/problems/national-debt/

Ansari, S. (2023, September 14). Crowding out. Economics Online. https://www.economicsonline.co.uk/definitions/crowding-out.html/

Create a response to Kari Padilla’s post below.

I found this simulation to be very interesting. I had no idea the government has so many categories that needs their attention. The items in each category are very important to our economy. I did reduce the required debt and was able to save more money.

I played the simulation game several times and my best strategy was to first reduce the debt.  I then added the expenses that would cost the government money verses save them money. A few keys things I felt were very important in my fiscal policy was, spending money on defense. Allowing veterans to see any doctors outside the VA.

There are so many veteran suicided and a lot of the time, help is not readily available in time. I felt like keeping the retirement age to 65 is good. By 70 years old they are too old to work and too old to enjoy retirement. Flat rate social security was important.

Discussion Responses

Extending expanded Obamacare and closing the coverage gap is very important to individuals who need this help. Reducing Medicare advantage cost is important. We look forward to retiring our whole lives. Once we do, we are on a fixed income.

Reducing the cost gives them more money for food or other goods and services. Increasing K-12 education spending, providing free community college, providing universal pre-k and providing subsidies for childcare, are extremely important.

We need to take care of our future generations. Taxes on the wealthy and increase tax on cigarettes and alcohol. These are some of the issues I felt were important to my fiscal policy.

• In your opinion, is a high national debt a problem for future economic growth? What is the ideal debt-to-GDP ratio? Research academic sources or refer to the information available through the simulation to support your opinion.

In my opinion high national debt is a big problem for future economic growth. The government always has first choice at borrowing money to recover from their budget deficit, they can borrow a lot because they have a low risk to default. This leaves very little for private investors to borrow. If private investors like household or firms want to borrow money, the interest rate is high.

Private investor start borrowing less. When they borrow less, business slow down growth and production. Business don’t expand or buy new equipment. Households can’t borrow money at low interest rates because the government took most of the money.

High National debt slows down future economic growth. The real debt to GDP ratio is the ratio of a country’s debt compared to the actual value of goods and services produced in the economy (Hennerich, 2021). A sustainable real debt to GDP ratio for the economy’s is 60% (Debt to GDP Ratio, 2024). It’s a good start to have in case of an event like covid 19.

• Government spending increases national debt and can cause a crowding-out effect. Explain what the crowding-out effect is and why it’s considered a negative effect of increased government spending. Use information from the textbook to support your analysis.

Crowding out is when the government crowds out private investors from the financial marketplace. What this means is the government spends more than it has, creating a budget deficit. They then borrow up almost all of the money, taking the low interest rate with them.

Leaving a demand for loanable money. Private investors have very little to borrow and if they do borrow, it’s with high interest rates. Governments have low interest rates because they are not at risk to default on the loan. All they have to do is raise taxes to pay it back (Mankiw, 2024).

References:

Debt to GDP ratio: The debt to GDP ratio: Deciphering its significance for debt sustainability. FasterCapital. (n.d.). https://fastercapital.com/content/Debt-to-GDP-Ratio–The-Debt-to-GDP-Ratio–Deciphering-its-Significance-for-Debt-Sustainability.html

Hennerich, H. (2021, December 14). Debt-to-GDP ratio: How high is too high? it depends. Federal Reserve Bank of St. Louis. https://www.stlouisfed.org/open-vault/2020/october/debt-gdp-ratio-how-high-too-high-it-depends