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To What Extent Should Debt Be Justified In The Economy?

1005 words - 5 pages

Keynesian economics is the idea that government spending can be used to stabilize the economy, and stresses the importance of moderate economic growth. According to Keynes, during prosperity governments should reduce spending to avoid inflation and to slow down consumer spending in order to maintain stable growth. During times of prosperity Keynesian theory states that governments should pay off debt, reducing the amount of money lost to interest payments. In Keynesian theory debt from fiscal spending is only justifiable when the economy is not doing well in order to provide help, and that in turn decreases disparity and stimulates the economy. Keynesian economies are often known as demand ...view middle of the document...

Following a Keynesian model, Clinton's administration paid $240 billion dollars of the debt. Other policies resulted in the GDP per capita growing by more than 12,000$ over his presidency, and 22.1 million jobs were created. In 1999, the economy saw the largest dollar surplus in history, $123 billion, which also marked the second year in a row of budget surplus. Clinton's administration used the surpluses to service the debt, between 1997 and 1999, $140 billion dollars went to this cause, the single largest debt pay down in American history. Lower interest rates resulting from less debt cut the average American families car loan payments by 200$ , and also cut 2,000$ from mortgage payments for people with mortgages larger than 100,000$. These benefits were the result of Clinton following Keynesian economics.Supply side economies tend to experience disparity in society. In 1980 Ronald Reagan drastically shifted the American economy to the right, implementing his policy of Reaganomics. His idea was to stimulate the supply side of the economy through large budget reductions in domestic programs and substantial tax cuts for individuals and businesses. The idea was to stimulate a greater supply of goods and services, creating jobs. The policy of reaganomics led to increased disparity in society because the tax cuts helped the rich much more than the poor. Social spending was cut by $30 billion between 1981 and 1984, and this raised poverty levels to 15% (34.4 million people) living below the poverty line, which is based on the money needed for subsistence living. The gap of disparity in the United States also increased. The richest 5% of the population's average income increased by more than 35 000$ between 1977 and 1988, while the poorest 10% of the populations average income decreased by more than 350$. This shows the weakness of supply sideDebt is justifiable in times of economic crisis to help people and improve infrastructure...

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