Final answer:
Budgets should be flexible to allow for adjustments in response to unforeseen events and economic conditions. A budget that is too rigid can worsen economic fluctuations, and it should include both variable and fixed costs for a comprehensive financial plan.
Step-by-step explanation:
When considering how budgets should be operated, it is generally accepted that budgets should be flexible. A flexible budget allows for adjustments in response to unforeseen circumstances, such as economic recessions or emergencies like wars. This flexibility is particularly important as it can prevent the exacerbation of economic fluctuations that a rigidly balanced budget might cause. In contrast, budgets that are too rigid may hinder a government's or a company's ability to respond to changing economic conditions. Moreover, budgets should not be limited to only short periods of time, nor should they include only variable costs. While variable costs are directly related to production and can change with the level of output, both variable and fixed costs should be considered in budgeting to provide a complete picture of financial expectations.