Question

If we as individuals would continue to spend more than we made, we would sooner or later have to pay up or go bankrupt. Our government is in the same position or will be unless we get serious about our liabilities and reduce expenditures enough to reduce the deficits or increase revenues enough to pay our bills and have some left over to pay the old bills. Evaluate this statement

Answer 1

The Government balances in an economy are given by the difference between Government expenditure and Tax Revenue of the government. The government budget is in deficit if government expenditure exceeds tax revenue and the government budget is in surplus if the tax revenue of the government exceeds government expenditure. To avoid borrowing from the private markets , the government should keep their balances either balanced or in surplus to avoid deficit in government budget. Thus, expenditure of the government should be spend in productive and constructive activities which means that capital expenditure of the government should be increased and revenue expenditure should be reduced. This is because capital expenditure in the present will actually generate revenue for the government in the future. Thus, tax revenue of the government in future will increase. Thus, it can be stated that government should get serious about its liabilities and reduce expenditure to increase revenues to pay revenues.