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    What would be the correct policy change to reduce the federal government budget deficits and debt? Evaluate this position by using the budget deficits and debt principle.

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    When the expenditures of a government are greater than its revenues, a budget deficit results; when revenues are greater than expenditures, a surplus results. Each year the deficit or surplus accrues. If the deficits are not wiped out by the surpluses, a debt results.

    Two simple approaches can be taken to reducing the deficit: cutting spending or increasing taxes. A short-term approach is to cut taxes or increase government spending. Each additional dollar of government spending becomes income for those who supply the initial increase in demand for public goods and services. In turn some of that increase in income will be spent, raising the incomes of those who satisfy this second wave of increased demand. This cycle continues in such a way that ...

    Solution Summary

    What policy changes are necessary to reduce the federal government budget deficit and debt?