The role of government in the U.S economy extends far beyond its activities as a regulator of specific industries or
gatekeeping. The government is also responsible for managing the overall pace of economic activity, with its objective
of maintaining high levels of employment and controlling price stability (inflation). It has two main tools for achieving
these goals: fiscal policies, which is done through taxes and spending and monetary policies, through which it
manages the supply of money. In this paper, I will discuss the why high deficits of today will reduce growth rate of the
economy in the future, look at the history of our nation’s debt and deficits, different elements that causes of deficit and
why the cause actually matters, what role the fiscal and monetary policies have to lead to higher or lower budget
deficits and how deficits affect the overall long-term economic growth and debt of the U.S.
Let us first begin by learning the difference between the terms debt and deficit. In economics, the term deficit means
a shortfall in revenue of a fiscal year. It is when the government’s revenue called receipts, which are collected taxes
(payroll, corporate, excise, income and social insurance), fee revenues and tariffs that are called receipts are lower
that what is spent called outlays. In other words, the federal budget deficit is the yearly amount by which spending
exceeds revenue. The term debt is described as an accumulation of deficits so the national debt is the total amount
of money owed by the government. It is calculated by adding all of the deficits minus the surpluses since the nation’s
inception and you get the current national debt. According to Econintersect, “the estimated 2011 budget deficit is at
almost $1.5 trillion, following deficits of $1.4 trillion in 2009 and $1.3 trillion in 2010.” ¶ 1.
The U.S. Federal Budget deficit is the fiscal year difference between what the United States Government takes in
from taxes and other revenues, called receipts, and the amount of money the government spends, called outlays.
The items included in the deficit are considered either on budget or off budget. Generally, on-budget outlays tend to
exceed on-budget receipts, while off-budget receipts tend to exceed off-budget outlays. The United States public debt,
commonly called the national debt, gross federal debt or U.S. government debt, grows as the U.S. Federal Budget
remains in deficit and is the amount of money owed by the United States government to creditors who hold US
securities like T-bills, notes and bonds. This does not include the money owed by states, corporations, or individuals,