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What are the effects of increasing in government spending both mandatory and discretionary spending on US economy forecast to grow by 1.5%?

US economy forecast to grow by 1.5 percent in 2014 By ANDREW TAYLOR August 27, 2014 11:31 AM

WASHINGTON (AP) - The Congressional Budget Office on Wednesday forecast that the U.S. economy will grow by just 1.5 percent in 2014, undermined by a poor performance during the first three months of the year.

The new assessment was considerably more pessimistic than the Obama administration's, which predicted last month that the economy would expand by 2.6 percent this year even though it contracted by an annual rate of 2.1 percent in the first quarter.

The economy did grow by 0.9 percent during the first half of 2014.

Looking ahead, the CBO said it expected the economy to grow by 3.4 percent over 2015 and 2016, and predicted that the unemployment rate would remain below 6 percent into the future.

The economy went into reverse at the beginning of this year, reeling from an unusually harsh winter that disrupted consumer spending, factory production and other business activity.

Growth in the gross domestic product, the economy's total output of goods and services, recovered in the second quarter, advancing at an annual rate of 4 percent, according to the government's first estimate. That forecast will be revised on Thursday.

Even with the rebound, economists have lowered their outlook for the entire year, given the weak start. Economists at JPMorgan Chase are forecasting that the economy will grow by 1.9 percent this year, when measured from the fourth quarter, down from 3.1 percent in 2013.

The CBO also projected that the government would run a deficit of $506 billion for the budget year that ends Sept. 30. That would be the lowest level of Barack Obama's presidency.

When the deficit is measured against the size of the economy, the comparison used most by analysts, it is within historic levels at 2.9 percent of GDP. Last year's deficit was $680 billion.

The deficit spiked at $1.4 trillion in Obama's first year in office and remained above $1 trillion for his entire first term.

The CBO foresees a slight increase from its earlier $492 billion projection of this year's deficit in part because of a decline in expected corporate tax receipts. But it see modest improvement over the coming decade compared with earlier forecasts, in large part because it predicts lower-than-expected interest payments on the national debt.

Obama inherited a recession and a trillion-dollar-plus deficit picture when he took office in the aftermath of the 2008 fiscal crisis. The economy has recovered more slowly than hoped; some of the recent drop in the jobless rate is due to frustrated job-seekers leaving the labor market.
"There is no question we have made progress - businesses have added 9.9 million jobs over 53 straight months of job growth," said Maryland Rep. Chris Van Hollen, the top Democrat on the House Budget Committee. "But there is more we need to do."

The report confirms a trend of short-term improvement in the deficit but an unsustainable long-term fiscal path if Washington doesn't cut spending or raise additional revenue.

Over the long term, the CBO said "the large and increasing amount of federal debt would have serious negative consequences" including the risk of a crisis that could raise interest rates.

All told, the CBO predicted that the government would add $7.2 trillion to the national debt over the coming decade, bringing the total debt to $26.6 trillion by 2024.

The latest numbers come as the GOP-controlled House and Obama are taking a break from the budget, debt and tax battles that have flared up several times since Republicans won back the House in 2010.

One of the biggest unresolved issue facing lawmakers when they return to Washington next month is the fate of dozens of popular expired tax breaks for businesses and individuals. Those breaks, if renewed, could add almost $140 billion to next year's deficit.

Obama did not see attacking the deficit as a priority during his first term. Republicans forced him to the negotiating table in 2011 and extracted more than $2 trillion in spending cuts over the following decade, though little of that savings came from big benefit programs such as Medicare.