Question

Explain why balancing the federal budget may not always make the economy stronger.

Answer 1

Below are some reasons why balancing is not always good

1.A balanced federal budget is no guarantee of economic prosperity. And, in some cases, it may make matters worse. This may seem counterintuitive, but balanced federal budgets can be harmful when they “lock in” and displace ever greater shares of income and wealth creating activity — national output from private sources (i.e., a percentage of national output, Gross Domestic Product (GDP).

2. In the effort to balance the federal budget, when it involves locking in larger and larger shares of private sector income and wealth, is misguided.