What is the formula for the government budget deficit? Why might it be appropriate for most governments, most of the time, to have a deficit (rather than surplus)?
What will be an ideal response?
Deficit = spending - tax revenues. Presuming that government spending in some way serves the public interest, it is reasonable to maintain such spending, even when revenue has fallen. Indeed, the economic circumstances that lead to revenue shortfalls are likely the worst time to decrease spending. Because long-run growth rates tend to be positive, several years of deficit spending can be repaid with fewer, later years of surplus. Government investment contributes to long-run growth, and justifies the spreading of the cost over long periods. Since a continuously balanced budget is infeasible, it makes sense to err on the side of deficit, to minimize the current tax burden and avoid accumulation of an unproductive surplus.
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Open market purchase will result in:
A) increase in bank reserves and a decrease in the federal funds rate. B) increase in bank reserves and an increase in the federal funds rate. C) decrease in bank reserves and a decrease in the federal funds rate. D) decrease in bank reserves and an increase in the federal funds rate.
The role of unions is:
A. unnecessary if the market does a good job of determining fair wages. B. to provide firms with a mechanism to more efficiently fire less productive workers. C. gaining power in the United States. D. All of these statements are true.
Briefly explain the concept of opportunity cost. What is the opportunity cost of attending college?
What will be an ideal response?
Which of the following would be described as the recognition lag?
A. The time required to get a particular plan implemented with the money getting into peoples' hands. B. The time required by a President to sign legislation. C. The time required to know that there is a recession. D. The time required to agree upon a policy remedy for a recession.