Critically evaluate the statement, Budget deficits can only be ...

[BRWH]

Critically evaluate the statement, Budget deficits can only be bad for a country.
 
  What will be an ideal response?

Question 2

If macaroni and cheese is an inferior good, then a decrease in income results in
 
  A) an increase in the demand for macaroni and cheese.
  B) a decrease in the demand for macaroni and cheese.
  C) an increase in the supply of macaroni and cheese.
  D) a decrease in the supply of macaroni and cheese.
  E) Both answers A and D are correct.

[ktidd]

Answer to Question 1

The statement is not correct. One time when running a budget deficit can be good for a country involves the case of automatic stabilizers. When the economy goes into recession, tax revenue falls and social insurance payments go up, softening the recession but also increasing the deficit. Those who believe in Ricardian Equivalence might also argue that budget deficits do not matter.

Answer to Question 2

A