Explore BrainMass

Budget Deficit Rationales

I have a discussion that relates to the budget deficits and it states: What rationale do economics use to support budget deficits? Not sure what reasoning economists support the budget deficits. I know that the budget deficits is the amount by which total government spending is more than government income during a specified period. Please will someone lead me in the right direction.

If we are spending more than we are bringing in, why support it? Also, does this have anything to do with the fiscal policy?

Solution Preview

Budget deficits were first proposed as a method of stabilizing the economy by Keynes. Because of the multiplier effect, government spending can bring the economy out of a recession or depression. Fiscal policy affects output directly though increasing consumption and government spending and indirectly through the tax and government spending multipliers. Increasing government spending requires either deficit spending or an increase in ...

Solution Summary

Keynesian economics and government spending. Limitations of fiscal policy.