Fiscal policy, economic choices, and congressional budget office analysis

Macro-Economic Choices

The three major categories for the federal government's revenues include: individual incomes taxes, corporate income taxes and social insurance taxes. Individual income taxes accounts for the largest amounts of spending for the federal government. As, these figure increased from: $1.1 trillion in 2010 to $1.3 trillion in 2011. While social insurance taxes are the second largest source of revenues with them providing at total of: $938 billion for 2010 and $978 billion for 2011. Then, there are corporate income taxes that are accounting for revenues of: $252 billion for 2010 and $292 for 2011. ("The Budget and Economic Outlook," 2011)

What are the three major categories of expenditures for the federal government? Please comment on each and indicate their relative importance to each other. Relative importance can be indicated by dollar amounts, percent of total revenue or expenditure or, though less informative, by ranking.

Three categories for the federal government's expenditures include: mandatory spending, discretionary spending and net interest. Mandatory spending accounts for the largest amounts of spending with these figures coming in at: $1.8 trillion for 2010 and $1.9 trillion for 2011. While, the overall levels of discretionary spending are: $1.1 trillion in 2010 and $1.2 trillion in 2011. Then there is the net interest which accounts for: $191 billion in 2010 and $220 billion in 2011. ("The Budget and Economic Outlook," 2011)

Discuss the current level of the Federal debt, and the past trend of the debt level. Discuss whether or not you are concerned about the current and future projected debt and level of associated interest expense.

In the past several years, the overall levels of federal debt have been increasing exponentially. As, they have gone from: $5.8 trillion (in 2008) to $8.2 trillion (for 2011). These figures are indicating that the past levels of spending have been extremely high. This is contributing to the dramatic rise these numbers. Where, this is accounting for 54% of the nation's total GDP production of $15.1 trillion for 2011. ("The Budget and Economic Outlook," 2011)

Assume you are the Chief Economic Advisor to the President of the United States and the President has asked you to review the deficit reduction proposals that were submitted by his commission (see link above). Choose the two commission recommendations you agree with the most and write an explanation to the President as to why those two should be enacted into law.

The two commission recommendations that I agree with are: the reduction in spending and reforming the tax code. The decline in spending is important, because this will account for 74% of these measures. As, the various entitlement programs such as: Social Security and Medicare must be restructured to fit in line with the budgetary challenges. Once this occurs, is when the federal government can eliminate wasteful spending and more effectively control the assistance they are providing. ("Debt Panels Plan would cut $4 Trillion," 2010)

Reforming the tax code is significant, because it would provide more effective avenues for the federal government to collect revenues. At the same time, it will encourage businesses to invest in America. As a result, these provisions should be implemented in to law. The reason why is because, effectively addressing these two issues will improve the ability of federal government to respond to a host of challenges. This is the point that they can offer more services to the general public. While at the same time, they are effectively controlling different aspects of their budget. ("Debt Panels Plan would cut $4 Trillion," 2010)

Economists classify macro-economic indicators as leading, lagging, or coincident. Define each classification and give two examples of each, relating them to the recession that began in 2007 and the recovery that is now under way.

A leading economic indicator is when you are using information from a particular tool to measure future levels of growth in the economy. Two examples of this include: the ISM Manufacturing Index and the movements of the equity markets. During the 2007 recession, the equity markets become very volatile in the August 2007. While the ISM Manufacturing Index, was showing slower levels of growth (with readings below 50 in early 2008). Once the recovery began in mid-2009, is when these indicators began to steadily improve. ("What are Leading, Lagging and Coincident Indicator," 2011)

A lagging economic indicator is when you are looking at past facts and figures to see its long-term impact. Some illustration of this include: the monthly Non-Farm Payrolls and the Final GDP. In September 2008, economists were looking at these past figures and this is when they dated the recession (with it starting in 2007). However, by the end of 2009, there were consistent decreases in the underlying levels of unemployment and improvements in GDP growth. ("What are Leading, Lagging and Coincident Indicator," 2011) (Rhodes, 2010, pp. 2- 31)

A coincidental indicator will tell you what is happening in the economy on a real time basis. A few examples of this include: initial jobless claims and the weekly oil inventory numbers. During early 2008, these numbers were beginning to show continued weakness with: the rising jobless claims and falling inventories. These two factors meant that the economy could be dealing with the possibility of stagflation. This is when there is a period of serve economic contractions that are fueled by a spike in commodities prices. In the last recession, this is exactly what happened, as the economy became steadily worse. During the summer of 2009, is when the total number jobless claims began to decline and the oil inventories began to stabilize. ("What are Leading, Lagging and Coincident Indicator," 2011) (Rhodes, 2010, pp. 2- 31)

All major economic indicators show the United States is recovering from the recession but that the process is not as strong as previous recoveries have been. If you were the President what would you do right now to help the economy recover so that the unemployment rate decreases faster than it has over the past two years? I would like specific suggestions or at least fairly defined generalities.