Answer to Question 1
Deficit = spending - tax revenues. Presuming that government spending in some way serves the public interest, it is reasonable to maintain such spending, even when revenue has fallen. Indeed, the economic circumstances that lead to revenue shortfalls are likely the worst time to decrease spending. Because long-run growth rates tend to be positive, several years of deficit spending can be repaid with fewer, later years of surplus. Government investment contributes to long-run growth, and justifies the spreading of the cost over long periods. Since a continuously balanced budget is infeasible, it makes sense to err on the side of deficit, to minimize the current tax burden and avoid accumulation of an unproductive surplus.
Answer to Question 2
C
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