Magister Commercii - MCom (Economics)

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Browsing by Author "Bagus Rafiq"

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    The effects of government deficit on aggregate demand: An empirical study
    (University of the Western Cape, 1994) Bagus Rafiq
    The macroeconomic effects of Government debt and budget deficits has become a central debate, particularly since budget deficits have increased as a percentage share of GNP in recent years. The debate is primarily concerned with the effects of these deficits on economic activity. The conventional view is that huge deficits will force up interest rates and thereby crowd-out business capital spending. Future generations will therefore be faced with a smaller capital stock and a lower level of output. Havard economist Benjamin Friedman summarizes popular opinion about the US deficits when he writes; "We are living well by running up our debt and selling off our assets. America has thrown itself a party and billed the tab to the future. The costs, which are only beginning to come due, will include a lower standard of living for individual Americans". Others would argue that despite this escalation in the ratio of debt to GNP in recent years, the US economy has managed relatively high average growth rates, much lower inflation, a sharp decrease in nominal interest rates and a moderate decline in real interest rates. The Ricardian view, in particular, makes various assumptions about consumer behaviour leading to results quite different from the conventional view. When tax cuts are financed through increased borrowing, for example, economic agents do not perceive the increase in disposable income to be permanent, because the tax cut is not permanent.