Question

Identify and discuss 2 arguments for and 2 arguments against a requirement that the federal government budget be balanced every year. Be thorough in your answer, taking care to include specific economic terminology and theories, or addressing how deficits might impact other areas of the economy.

Answer 1

Two arguments for balanced budget :

a) forces fiscal responsibility , reduces over spending or excessive taxation to gain extra revenue . Just like households and firms maintain a balanced revenue and spending structure , so the government should also follow the same .

b) Prevents crowding out . Unbalanced budget may result in increament of interest rates , this leads to crowding out of private investment .

Two arguments against the balancing of budget :

a) Balanced government budget leaves no room for social expenditures or non profitable expenditure .

b) Fiscal deficit sometimes the economy dole out of recessionary trends