Overview of the Current Economic Situation
Although it is extremely hard to say, which type of budget deficit is more serious -structural or cyclical, I would undoubtedly opt for structural for the reasons scrutinized below.
My first and foremost reason for supporting such an assertion lies in the fact that structural budget deficit is an artificial phenomenon, which is caused by discretionary choices of the government in the sphere of taxation and public expenditures. It reflects deliberate decisions and actions of the government and its improper fiscal stance. Therefore, the depth and impact of structural budget deficit can be infinite, since sometimes the measures aimed on the recovery of the economy only worsen the situation and lead to even more profound and serious problems. Cyclical budget deficit, on the other hand, is a natural process, which takes place because of the growth and downturn patterns in the economy, which are unavoidable. Thus, once being in the state of cyclical budget deficit, one day an economy will begin to recover, grow and develop under natural market conditions without any impact of other external forces or governmental intervention. The second reason why I take this view on account is that structural deficit may exist even if a particular economy is at its potential. Therefore, structural deficit can prevent an economy from growth and cause constantly repeated recession and stagnation patterns. Cyclical deficit, in its turn, does not even exist at this stage and cannot affect the economy negatively.
Judging from the TV news and local newspapers, I have got an impression impression that American Recovery and Reinvestment Act of 2009 has worked pretty well for the following reasons. First, according to manifold mass media, the implementation of ARRA was one of the major catalysts of the change of the US economy’s trajectory, which began in the third quarter of 2009. Since that time, real GDP of the country has been growing steadily. Furthermore, before the Recovery Act, the level of employment showed an accelerating decline. The implementation of the Act, however, was followed by a substantial improvement in the employment patterns. Nevertheless, mass-media frequently emphasize that real GDP still remains below its projected rate and the unemployment rate is abnormally elevated.
It is widely accepted fact that the financial and economic recession of 2008-2010 has its origins in the subprime meltdown that began during the late summer 2007, with the collapse of the housing bubble in the USA to be the main reason for global economic recession to begin. Since then, a wave of economic misfortune has spread through a thickly intertwined network of global trade and investment relations. Thus, not much of the current fiscal problems being experienced by state and local governments are a result of their own poor decisions, but the result of the whole economy’s downturn, accompanied by lowered economic activity, high level of unemployment and reduced wages.
In order to deal with the current recession, the authorities of my home state – New Jersey, have undertaken several …
Posted by: Traci Ulibarri