Question

1. a: a friend argues that if a nation has a large budget deficit it must also have a large level of debt. Explain why you agree or disagree.

b: a friend claims a nation should always have a balanced federal budget. Do you agree? Why or why not.

Answer 1

a) "True"

The fiscal deficit is nothing but having a higher expenditure than the income. If the government is spending more than their income they will be having a debt. The higher the deficit i.e. expenditure over the income the higher the debt will be.

b) No, a deficit level or the surplus level of the budget depends on the economic condition. If the national economy is down then the government should have a higher deficit, it will take the economy at a better level. Similarly, if the economy is on a higher path the government should have a surplus or less deficit budget. It will help reduce the inflation and keep economy an equilibrium.