Federal Debt Vs. Annual Surplus Discussion Chapter

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When you seeing, consistent amounts of deficits or surpluses, this will have an impact on the debt level. As, this will cause the sum to: rise or fall, which is a sign of the underlying trends. Over the course of time, these patterns can cause the amounts of debt to increase (if there are large deficits). While the debt, will decline when the government is reporting consistent surpluses. This is significant, because it is showing how these two factors will have an impact on the size of the debt. (Cashell, 2010)

Discuss the Impact on Interest Rates and Future Tax Burdens

If the debt is allowed to increase it will mean that interest rates and taxes will rise. The reason why, is because the creditworthiness of the federal government will be brought into question. This will cause interest rates for a wide variety of loans to multiply.

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At the same time, a larger amount of revenues that are being received will be forced to pay higher interest on the outstanding debt service. This will lead to larger taxes burdens on businesses and individuals. As, the government is forced to: raise the marginal rates to cover additional costs on the debt. While simultaneously, providing the citizens with the same kinds of services that they demand. (Cashell, 2010)

Clearly, the biggest problems associated with controlling the rising federal debt is: that spending is out of control. This means that during years when surpluses are being received, the government will continue to run a deficit. This is troubling, because if left unchecked, these factors can lead to higher interest rates and taxes. Once this occurs, economic activity will go into long periods of stagnation......

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