A deficit is when the government spends more than it takes in a given year. Some believe a deficit will allow more people to work and increase productivity, but deficit does this because it is invested into the economy by government. If the government spends deficit money on new highways, then more jobs will be produced. If the government spends the money it gains from a deficit on assets that increase its wealth and productivity, then the debt might actually benefits the economy. A public debt is classified into non-marketable and marketable securities. The marketable consist of bills, notes, and bonds held by the government. While non-marketable refers to the cycle owed to the social security trust fund. The debt that the public holds is a liability in the books of the country. Introduction of debt in the economy is a challenge to the macroeconomic models as it creates complexities in incorporating it. The models are less dynamic due to the techniques used in reaching the equilibrium. The conservation of debt principle is when debts are collected by refunding the credits it receives as income to the system of banking. Once it is receive, it cancels out debts and contracts of the balance sheet. The repayment of debt by the government regulates the expenditure to be below the receipts. It also sets off the need to borrow in other sectors of the economy. When the expenditure is reduced due to repayment of debts, somewhere in the economy, income is also cut. “It follows that expenditures financed by debts increases the expenditure above the income” (Farmer, Karl and Andreas 60). The price level of commodities is known to affect the public debt of a country. In the United States, gold and silver prices have had major impacts on this. The gold price is correlated to the public debt as shown in the diagram below.
The government spending has been in questioned in regards to buying votes, welfare, wars and few services that lead to increase the debt and the prices of gold and silver. The debt of the country has great impacts on the exchange rates. There needs to be a plan on ways to reduce the national debt as the negativity has an effects on the value of the currency. The deficit in the budget and the debt spiraling in the country has made everyone in the society to be keen on the key economic indicators. Increase in debt has a great force on the dollar value and results to increase in the costs of organizations and businesses that uses the dollar to buy goods and services. The global trends are a major concern for many businesses, and they continue to focus on the country’s deficit as it directly affects them. “The exporters greatly benefit from the deterioration of the dollar as exports are cheap in the international market although they bear high costs of borrowing” (Farmer, Karl and Andreas 80). Our country could adopt a policy of locking in rates to protect the country from volatility in prices. Most businesses will consider this option in the short run to avoid missing the favorable rates when trading. Businesses have to calculate their costs in advance to help