Answer to Question #256175 in Microeconomics for Pragya

Question

 Historically, when has the Federal government been most likely to run budget deficits? What has been the recent experience?

Answer 1

The Federal government been most likely to run budget deficits during wars.

From the early 1980s to the mid-1990s, deficits were very large, even without a major war. The U.S. government ran surpluses for several years, from 1998 to 2001, but have run deficits since then.

For most of the twentieth century, the U.S. government took on debt during wartime and then paid down that debt slowly in peacetime. However, it took on quite substantial debts in peacetime in the 1980s and early 1990s, before a brief period of budget surpluses from 1998 to 2001, followed by a return to annual budget deficits since 2002, with very large deficits in the recession of 2008 and 2009.