Question

1. Explain why balancing the federal budget may not always make the economy stronger.
2. What is happening in our national economy right now and how would you recommend the government respond? Make sure you make an argument for your response that shows what you have learned in the class.
3. What do you think was the most valuable topic we covered in this class and why?
4. What do you wish we had time to study in more detail in this class and why?

Answer 1

1)

Balance Federal budget occurs when government expenditure tends to become equal to revenue. Government does not make expenditure outpacing availability of revenue.

Balancing of budget could be right course of action when economy is balanced, but when economy faces boom or bust, following balanced budget would not be right policy action.

Recession: Demand is too low during the recession, government has to make more expenditure to guide economy towards full employment, If government does not follow deficit budget, it might spiral into deeper recession and there will be loss of output and employments.

Boom period: when economy is facing boom phase, there must be fall in demand to rein in inflation and resultant negative fall outs.Thus, government must restrain its expenditure and maintain some surpluses.

2)

Following are few statistics of economy:

• Unemployments 3.6 %
• Growth rate is close to 2 %
• Inflation rate is 1.6 %
• Debt: 108 % of GDP.

Above figures depict that though economy is performing well, level of debt is high and it might rise further if government keeps on adding its expenditure to fund social security programs. These programs must be rationalised and government needs to reduce its level of expenditure or unnecessary expenditure must be pruned.