At times, politicians have argued that we should have a law that requires Congress to balance...

At times, politicians have argued that we should have a law that requires Congress to balance the federal budget. Some politicians believe this is the fiscally responsible approach while others think it is better to allow the federal government the leeway to determine the budget based on the state of the economy. Some politicians worry about running a deficit as this will add to the federal debt. Most states in the US have balanced budgets.

What are the arguments for a balanced budget and what are the arguments against having one?

Do you think we should be worried about the size of the federal debt? Why or why not?

Which approach do you agree with and why?

Solutions

Expert Solution

Following are some statistics about the US economy:

US growth rate is 2 %
Inflation rate is 2 %
US debt is 108 % of GDP.

US unemployment rate has been close to 3.4 % or it can be said that economy is operating at full employment level. US debt which is over 108 %, is not good for economy. Government debt level must fall when economy booms, But US debt is rising which is not good news for economy. Debt can rise only when economy faces the problem of recession. During recession, it becomes incumbent on government to raise the level of output and employment.

Pros of Balanced budget:

it does not cause rise in the inflation.
Future generation does not pay expenditure made in past.
Government does not become vulnerable to interest rate.

Cons:

Government can not deal with recessionary pressures.
There will be fall in the government social securities programs.

Further, government has offered tax concession, which would further raise the level of debt.

Thus,as of now , government should reduce its debt level.

Rahul Sunny answered 11 months ago

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