A) Does government budget deficit matter? Explain.

B) What are major reasons for the U.S. government budget deficit? Give examples.

(A) In the short run, a budget deficit does not matter. It is expected that there will be both budget deficits and budget surpluses in different years. In the long-run, however, the budget should be balanced. If there are not surpluses during expansionary periods, then the deficits are a concern since these are the periods that the debt needs to be paid down through government surpluses.

(B) The main reason that the U.S. has steady government deficits is because of an aging population. Two of the largest expenses in the budget are Social Security and Medicaid. Because the population is living longer, the number of years that individuals are receiving these budgets is expanding, resulting in more money being taken from the funds each year. Another reason why the budget deficit exists is because most economic decisions are being made with only the short-run implications in mind. Politicians in the United States are up for re-election every 2, 4, or 6 years. Because of this, most are unwilling to craft a budget that may be helpful long term, but unpopular in the short-run. This results in fiscally irresponsible bills being past that harm the economy in the long run.