Question

Explain and defend/oppose quote:

" The problem with a balanced-budget amendment is that it would, in a sense, require active fiscal policy -- but in the wrong direction - as the economy slides into recession."

Answer 1

Balanced budget means government expenditure and revenue would be equal. When economy booms, government either has to reduce its revenue or increase expenditure to balance expenditure and revenue. Similarly, in recession, government has to reduce its expenditure to match reduced revenue.

Government can not deal with recession with such rule. During the recession, government has to make huge expenditure to restore equilibrium, but government can follow such path if balanced budget legislation is passed.

Thus, balanced budget policy can not be pursued all the time. Certain flexibilities must be allowed to address economic ups and downs.