High Budget Deficits Essay Example | Topics and Well Written Essays - 1500 words

High Budget Deficits - Essay Example Budget deficits, on the other hand, are the amounts in deficit of what the individuals spending, government or even a companies or corporations spending are short of the planned incomes from the entities sources. In another name, deficit spending may be the other terminology of budget deficits. Over the past years, budget deficits of countries, most so the developing countries, have attracted a lot of publicity. This has been majorly witnessed over the past two decades of which financial restructuring and turbulence have been witnessed (Associated Press 2010). The country where the impact is witnessed is attributable to the assorted financial ills bedeviling such countries; the countries base their expenditures from high debts due to extensive borrowing, high and ever growing rates of inflation and investment problems attributed to poor investment and their poor growth performance of such investments (Associated Press 2010). The poor government financial position, most so in regards to budgets, results to poor economic growth rates. The factors that fuel these rates are the poor growth of government revenues due to poor collection measures and tools. The budgeting process, which is not well structured, is also blamed for it in a major proportion. Others include the levels of economic development, which is low and unstable. World macroeconomic shocks, like the Great Depression and poor ways in which the government controls its expenditure, have in the past been witnessed to impact on the government financial position (Associated Press 2010). The methods used to finance any form of budget deficit will always result into an imbalance in one way or the other. For instance, if local borrowing is used, then the crowding out effect of the private investments occur leading to the collapse of the private firms which may even end up causing more harm to the economy. The budgeting process of most countries has so many loops and is, therefore, responsible for most countrie s budget deficits apart from the government participation in most economies and even the other factors as discussed above. According to reports, it is in record that budget deficits have several impacts on some economic sectors, such as private consumption, private investments, the T-bill rates, current account, and even money supply into the economy (BBC 2010). The aspects that the deficit has impact on as discussed above are major pillars for the measure of any economic growth of a country. Budget deficits have been recorded to reduce money supply into the economy; this majorly results when domestic borrowing is given an upper hand (BBC 2010). Intensified domestic borrowing may also lead to the collapse of private sector firms as a result of crowding out effect. I may, therefore, comfortably conclude that budget deficits in any economy are harmful to economic growth rates since they lower the growth rates. The causes of budget deficit are many and they include most major governmen t stakeholders (individuals, companies, and corporations) who evade taxation. It is in record that many US firms use the fair share of the infrastructure by the government but they don’t pay their fair share of the taxation; they use the roads, defense, grants and even emergency services (BBC 2010). Despite the companies making huge profits from the countries resources, they try as much as they could to evade

First of all its necessary to consider Hecksher and Ohlin theory Essay

First of all its necessary to consider Hecksher and Ohlin theory - Essay Example Countries have comparative advantage in those goods for which the required factors of production are relatively abundant. This is because the prices of goods are ultimately determined by the prices of their inputs. Goods that require inputs that are locally abundant will be cheaper to produce than those goods that require inputs that are locally scarce. For example, a country where capital and land are abundant but labor is scarce will have comparative advantage in goods that require lots of capital and land, but little labor - grains, for example. Since capital and land are abundant, their prices will be low. Those low prices will ensure that the price of the grain that they are used to produce will also be low - and thus attractive for both local consumption and export. Labor intensive goods on the other hand will be very expensive to produce since labor is scarce and its price is high. Therefore, the country is better off importing those goo The Ricardian model of comparative advantage has trade ultimately motivated by differences in labour productivity using different technologies. Heckscher and Ohlin didn't require production technology to vary between countries, so (in the interests of simplicity) the H-O model has identical production technology everywhere. ... The H-O model removed technology variations but introduced variable capital endowments, recreating endogenously the inter-country variation of labour productivity that Ricardo had imposed exogenously. With international variations in the capital endowment (i.e. infrastructure) and goods requiring different factor proportions, Ricardo's comparative advantage emerges as a profit-maximizing solution of capitalist's choices from within the model's equations. (The decision capital owners are faced with is between investments in differing production technologies: The H-O model assumes capital is privately held.) Original publication Bertil Ohlin published the book which first explained the theory in 1933. Although he wrote the book alone, Heckscher was credited as co-developer of the model, because of his earlier work on the problem, and because many of the ideas in the final model came from Ohlin's doctoral thesis, supervised by Heckscher. Interregional and International Trade itself was verbose, rather than being pared down to the mathematical, and appealed because of its new insights. [edit] The 2x2x2 model The original H-O model assumed that the only difference between countries was the relative abundances of labour and capital. The original Heckscher-Ohlin model contained two countries, and had two commodities that could be produced. Since there are two (homogeneous) factors of production this model is sometimes called the "222 model". The model has variable factor proportions between countries: Highly developed countries have a comparatively high ratio of capital to labour in relation to developing countries. This makes the developed country capital-abundant relative to the developing nation, and the developing nation