Question

For the National Debt:

Do you feel fiscal policymakers should make balancing the government's budget a high priority? Why or why not?

How will reducing the government budget deficit make future generations better off? How could reducing the government budget deficit harm future generations?

Answer 1

1) The balancing of government spending need to be prioritizing and set it is as a high priority policy goal. It is the only approach that provides guarantee that the public debt will not outgrow the economy, which may increase interest rates, crowd out private investment, increase inflation and depict the true fiscal condition of the country

2)

a) Budget deficits cause an unjustifiable burden on future generations with an increase in their taxes and lowering their incomes. Lower budget deficit will decrease the interest rates, causing a rise in the investment, resulting to a larger capital stock in the future. It indicates higher real wages and higher future labor productivity.

b) When the deficit occurs because of more spending on public goods and services; the next generation gains from the deficit. If the deficit is reduced it may harm the future generations. For example:

-- Investments in infrastructure - hospitals, ports, pipelines, highways, sewage, water, and phone will provide future benefit to next generation. Facilitating transport and better communication enables the next generation to flourish

-- Investments in boosting the health and education of the workforce will improve their children life as it would help in breaking the vicious circle of poverty and improving the economic productivity

-- Investment in improving environment, energy, water and goodwill will certainly help the next generation