Question

Suppose you are a politician debating the merits of a policy change in entitlement spending that will lead to an increase in the projected budget deficit over many years.

            a) Give alternative perspectives on this deficit spending. Why might the deficits not be quite as bad as they seem? Why might they be worse?

            b) Suppose an economist points out that the policy change will increase “generational imbalance”. Describe what this means and the consequences for intergenerational equity          (i.e. is it fair to have a generational imbalance?)

Answer 1

1)a deficit s nothing but an excess of spending over earning. similarly deficit in budget of a country means the country's expenditure exceeds its revenue. here the resulting deficit might have occured for various reasons like developmental activity or war spending or any natural calamity etc. if the budget deficit is for the developmental activity then its returns will result in further economic growth for example if a country spends a lots of money on establishing a big company in a particular area and deficit occurs because of this then its not bad for the economy because increased employment opportunity income generation and output will balance out the deficit but if the deficit occurs because there was some natural calamity that destroyed production then the deficit in production will be filled by further deficit in budget, and in this case its worse.

2) generational imbalance occurs when a state has a reduced birth rate and an increased health resulting in an increasing aging population compared to its working younger population. this imbalance in generation results in productivity loss as most part of the population is aging and the lower younger age people will be burdernised. this imbalance will result in imbalance growth so its not fare to have a generational imbalance.