Posted by Paul on .
When the economy is at full employment, should the federal government run a budget deficit, surplus . Or neither? Explain.
Remember WWII? The US was at full employment then...but the expenditures great.
I am not and economics person, but the above example might lend one to think that there are other factors invoved besides employment.
Thanks, Bob Pursley. I hadn't thought of that angle -- that necessary and unusually high expenses are good reasons for running a budget deficit, even with high employment.
When the government, a company, or an individual runs a budget deficit, interest is paid on the amount owed. Why should we run a deficit when we have the money (i.e., full employment) to pay for the necessary goods and services? A surplus can be used to pay for additional services for the country's citizens and provide a cushion for any hard times that may lie ahead.
Thanks Ms. Sue! That makes a lot of sense!
You're welcome! Please also see BobPursley's and my answers about times with full employment but extraordinally high and necessary expenses.