Debt reduces savings resulting to slow investments; this has slowed the economy of America. Reducing the debt will lead to an increased tax revenue collection and the government will be able to invest and hence improving the economy. This section focuses on Trumps plan to reduce the debt by growing the economy six percent annually. Improvement in the economy will result in technological progress, increase in capital stock, quality life, income equality, and improvement in the level literacy.
Technological progress is a process that involves invention, innovation, and diffusion of technology. It is the purposeful application of information in production, design, an organization of human activity, and utilization of goods and services. It contributes significantly to the growth of the American economy. It improves the working conditions, provides an increase in the flow of products and permits reduction of working hours. It also helps in the intensive utilization of the available resources which in turn results in the growth of national income and economic development. It includes blueprints, prototypes, models, consultancy, and intelligent systems. Technology has been effectively demonstrated in the video through the battle of ideas that define the world. In the film, workers are urged to unite against the global economy.
An increase in the national income will lead to an improvement in the living standards of the American people. The growth results in an increase consumption, an improve public service provision and reduction in unemployment. The rise in income level increases the rate of consumption of individuals hence increasing tax revenue. The government spends more on providing important public services such as education, health, and job creation. Job creation minimizes social problems such as alienation and crime.
Literacy improves as a result of economic growth. It is a state of being able to read and write. It is a phenomenon in which one enhances their communication, social and professional skills. It can be determined by comparing per capita income, the standard of living, gross domestic product, development of infrastructure and industrialization. Literacy will improve the working condition of the American people enhancing them with the necessary skills.
Capital stock is the total amount of stock that a company has the authority to issue.it is approved by the board of directors. The company can also issue more shares for sale by buying back existing shares from stakeholders. The increase in the capital stock may affect negatively the economy of America since it leads to dilution of the shares; additional number of stock shares indicates that each existing share represents a smaller percentage of ownership. However, the increase is beneficial for investors. Selling additional shares of the stock increases the capital of the company and financing economic growth; gains at the stock share price, and dividends compensate for the dilution of the shares.
Six percent growth rate targeted by Trump may lead to inflation. There will be excess liquidity in the money supply increasing the purchasing power of people. The demand for goods and services will increase the supply reduce. Employers will have to hire more workers to increase the production of goods. Jobs will be created and a prosperous economy established. When the economy corrects, unemployment rate accelerates leading to recession.
The recession is a business cycle contraction which results in a general slowdown in economic activities. It occurs when there is a widespread reduction in spending which is caused by an adverse supply shock, a financial crisis, the bursting of an economic bubble or external trade shock. The government can control recession by increasing its spending, decreasing taxation, and increasing the money supply. In the film, the delegates met to plan for a post-war economy which leads to the establishment of World Bank and the international monetary fund. They were designed to bring stability to the world economy and prevent the unemployment.
In conclusion, debts may be used to finance important projects within a given state. Providing services to the people improves their living standards leading to an improvement in the economy of the country. The debts exert more burden on the government and hence the need to reduce it. Trumps plan to reduce the debts will minimize the pressure on the government; it will be able to focus on the more productive sector of the economy.
Microeconomic of Kenya
This section is based on microeconomic in Kenya where domestic debt has increased to sh1.91 trillion declining public investment. The huge debt provides a constraint to the growth of the economy due to high taxes imposed to people to reduce the burden of debt to a manageable level. The debt includes budget deficits and public debt.
Government debt is the outstanding stock issued by the government at any time in the past and not yet repaid. The government issues debt whenever it borrows from the public. The outstanding debt is equivalent to the cumulative amount of net borrowing that the government has done. The government creates debt by issuing bills, government bonds, and securities. Developing countries borrow from international financial institutions. In the developed country it is held in the home currency as savings accounts by the central bank. The debt can be internal or external debt, it can also be classified in accordance with the payment duration as short-term debt, medium-term debt, and long-term debt. Short-term debt is payable in less than one year while long-term debt is payable in more than ten years. Medium-term debt falls between short-term debt and long-term debt. In the film, during World War II, the American government borrow money to invest in the war which leads to economic depression.
The deficit is the addition outstanding debt in the current period. It is negative whenever there is a fall in the value of the outstanding debt. The surplus is the negative deficit. When the tax revenue collected by the government is inadequate to fund its spending, it may result in the deficit. Government bonds is a form used by the state to borrow money to finance its operations. The deficit is caused by business cycles, structural reasons, Keynesian Fiscal Deficits.
A sustained slow growth period also known as recession may lead to a deficit. Revenue declines from both direct and indirect taxation simultaneously. The government pays more in welfare benefits such as unemployment benefits; the average tested income to aid and other handouts. Part of the deficit may be as a result of automatic stabilization. Automatic stabilization is the change in the government spendings and taxations that happen naturally at different phases of the business cycle. Developed countries governments prepare to enhance instant stabilization of the economy. Economy recovery diminishes the business cycle perspective of fiscal deficit. The government runs an excess budget during an economic boom.
The budget deficit may also be caused deliberately by the government by using the policy of expansionary fiscal. This boosts employment, demand, and output when the private occupation is declining. Keynesian economist use timed and selected fiscal stimuli which include an intensive human labor in public works among other investment projects on infrastructure to design and to starting an economy deficit from a chronic lack of income and demand.
In developing countries, the fiscal deficit is a permanent feature. The government is unable to find enough tax revenue to cover the annual spending budgets. Structural reasons that lead to persistent fiscal deficit include; a rise in the level avoidance and evasion of tax, increase the level of wealth and income inequalities, demographic forces, Government incapacities, an increase in government subsidies.
Tax avoidance is legal while tax evasion deliberately is illegal. Unequal societies worsen governments fiscal position. If people are paid low and have insecure work, they will not have enough money to pay taxes. This individual end up depending on the working group and hence increasing the burden on government spending. Aging population causes a rise in government expenditure on a pension. Growing population puts a burden on the government to finance merit goods and the essential public. If the government is inefficient in providing public services, the money value will be low, and spending will increase to finance the cover needed by the people. Smaller government operations having many operations privatized are favored by the free market. Government spending increases due to additional competing demands positioned upon the politicians.
The central bank of Kenya has slashed interest rates to maintain a policy of four percentage points above its benchmark rate. The Kenya Bankers Association opposed the policy claiming that it will force them to cease lending to high-risk borrowers. This may limit capital accessibility and hence reducing investment which may result in economic decline.
Domestic debts may be used in the construction of roads, schools, hospitals, railway lines among other infrastructure. It starts to affect when investors began to doubt if the debt can be paid off. It becomes hard to attract them to buy the bonds, budget deficits inflationary fear becomes common, and crowding out. Budget Deficits and Public Debt may lead to a depreciation of the economy.
Depreciation is the gradual decline in the economic value of the capital stock of a company through changes in the demand for the services of a given capital, obsolescence, and physical depreciation. It appears as a non-cash business expense on the firm income statement; it is used to calculate the assets book value for the balance sheet. The decrease is estimated using the information concerning the useful life of the asset. In the film, John Maynard of Cambridge university published a book of how to fight the depreciation by showing government it is possible to manage the economy.
In conclusion, most developing countries cant sustain their economy. The rate of consumption in Kenya is higher than production rate. The unemployment rate is high hence there is a lot of dependency on the government. The government has a high budget deficit and public debt. The burden caused by budget deficits and public debt on the government makes it hard to provide core services to its citizens. Poor infrastructure, illiteracy, unemployment, and insecurity contributes to an economic depreciation of the country. The government should try to borrow manageable amount so that it can minimize the high-interest rates and hence investing the extras to provide quality services to its people contributing to the growth of the economy.
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