Question

One of the widely debated issues in macroeconomic policy is related government budget, which involves government...

One of the widely debated issues in macroeconomic policy is related government budget, which involves government spending and taxes.

a. Should the government always balance its budget? If you think it should, what steps do you suggest that it should take to balance its budget?

b. What is the relationship between budget deficits and national (public) debt? Why has the USA national debt been increasing for decades?

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Answer #1

a) No, government should not always balance its budget. Mostly government run budget deficit which occurs when government spends more while collects less money through taxes.

To maintain or attain balance budget from deficit budget, government should either increase taxes or reduces its spending. On the other hand, if government runs surplus then government should either increase its spending or reduces taxes.

b) A budget deficit is the difference between federal government spending and government revenue from taxes. The national debt is the result of the federal government borrowing which occurs when government borrow money to cover its budget deficit.

The USA national debt has been increasing for decades because government spending of USA federal increases due to the great recession. The federal government invested money heavily in the economy to cover recession.

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