Fiscal Policy Paper

Discuss within your Learning Team how and why the U.S.’s deficit, surplus and debt have an effect on the following:

A domestic automotive manufacturing (exporter)

The U.S. deficit, surplus and debt has affected the domestic automotive manufacturer like Ford and Chevrolet because if there is a deficit then the U.S. is importing more than they are exporting when this occurs it adds more debt to the economy. When the U.S. has a deficit it means that the government is spending more revenue than it is receiving. Every year the amount is added to the total amount of debt and the U.S. debt increases over time. When there is a high deficit and debt interest rates will increase the cost for auto manufacturers on the production of vehicles. This will lead to decline in employment because of the lack of orders and sales because of the high cost of the vehicles because of the high interest rates. A surplus is an excess of revenues over payments (Colander); which indicates a good economy. In a good stable economy the interest rates are low and so is the production cost of goods and services. The automotive industry fairs well when this happens and they can exports more vehicles overtime. This in turn will increase the employment rate for the auto industry.

An Italian clothing company (importer)

An Italian clothing company can greatly benefit from its goods being imported by the U.S. especially if Italy’s economy is in a stable condition at the time of trade. The Italian clothing company also grows and creates jobs for the unemployed as a result of this trade deficit. If the U.S. trade has a trade surplus then can cause the Italian clothing company to be shut down and also unemployment rate will rise because the company is not producing the goods and services that is needed by the U.S.

References: Colander, D.C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin.