examines how government policy can affect aggregate demand.let's focus on one specific aspect of government policy - budget deficits.There has been legislation proposed to require the federal government to maintain a balanced budget.take one of the two views below and justify the position.

justify one of the following

Pro: The Government Should Balance Its Budget.Government debt places a burden on future generations of taxpayers who must choose to pay higher taxes, cut government spending, or both. Current taxpayers pass the bill for current spending to future taxpayers. Moreover, the macroeconomic effect of a deficit is to reduce national saving by making public saving negative. This increases interest rates, reduces capital investment, reduces productivity and real wages, and thus, reduces future output and income. As a result, deficits raise future taxes and lower future incomes. While deficits are justified during wars and recessions, the increase in the deficit from 1980 through 1995 occurred during peace and prosperity. The most recent deficits may be due to the recession of 2001 and the war on terrorism.

Con: The Government Should Not Balance Its Budget.The problem of government debt is exaggerated. The $16,000 of national debt per person is small compared to expected lifetime earnings of $1.2 million. Also, since some government spending is on education, reducing the budget deficit by reducing spending on education may not improve the welfare of the next generation. Other government policies redistribute income across generations such as Social Security benefits. If people wish to reverse the intergenerational redistribution of income caused by budget deficits, they need only save more during their lifetime (due to their lower taxes) and leave bequests to their children so they can pay the higher taxes. Finally, government debt can continue to grow forever yet not grow as a percent of GDP as long as the debt fails to grow more quickly than the nation's nominal income. In the United States, that would be a rate of about 5 percent, which equates to about a $235 billion sustainable deficit.