Question

Your response is not simply to agree or disagree, but give examples and a reason why you chose to respond to that question.

Is a budget deficit a serious problem? If it is yes how would you propose lowering it? If no then explain why?

Answer 1

Budget deficit occurs when the country's spending is more than it's income.If the deficit is persistent than it has some serious implications for the economy but if it's in a normal range then it proves to be beneficial for the growth of the economy and reducing unemployment.

Budget Deficit is not a very serious problem if it's controlled.Normally countries favour 2-3% budget deficit as it helps them in devising a growth strategy for the market and they can formulate a plan to lower it and phase it out through controlled quantitative measures.. Some negatives of the budget deficit are that the government has to fund the budget deficit by borrowings and it creates a debt burden in the form of interests that has to be paid for very long-term and to cover the burden,the government will increase the taxes.

The positives of the budget deficit are that it increases government spending which results in increasing aggregate demand,create employment so increases output.It shows that a country is spending more on the social welfare programmes which is ultimately good for a country in the long-run as it increases the welfare of people so budget deficit is necessary for economy growth.

If there was budget surplus,it would mean that the government had unused money which could have been utilized in finance of development programmes and improving the infrastructure of the country.

The budget deficit makes use of these surplus income and use the money to finance public sector investment,it creates private sector wealth as when the FED spends in deficit,it does so byputting assets in the form of Treasury bills in the hands of the public so it creates extra demand but also create a saving and put it in the bank.The benefits of budget deficit cannot be ignored as it is required for the growth of the economy and welfare of the people.