Give some arguments for and against a balanced budget requirement.
What will be an ideal response?
A balanced budget requirement would eliminate the possibility of a budget deficit. Given the recent increases in both the deficit and the debt as well as the increased spending that will be required given the retirement of the baby-boomers, a balanced budget and reductions in the national debt would be very well received. However, such a requirement would be extremely problematic if the economy were operating with a recessionary gap or an inflationary gap. During a recession, tax receipts naturally decline and payments made through automatic stabilizers naturally increase creating a budget deficit. In order to counteract this deficit, the government would have to raise taxes and/or decrease government spending. Both of these steps would make the recession more severe. During an expansion, tax receipts naturally increase and automatic stabilizers decrease creating a budget surplus. To counteract this surplus, the government would have to decrease taxes and/or increase spending which would lead to a further expansion of the economy and significant inflation.
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Starting from a long-run equilibrium, a reduction in potential output leads to ________ gap in the short run and to a___ rate of inflation in the long run.
A. a recessionary; higher B. a recessionary; lower C. an expansionary; higher D. an expansionary; lower
Explain the paradox of value
What will be an ideal response?
In terms of cost-benefit analysis, explain why a competitive market with an externality produces too much pollution
What will be an ideal response?
Which balance of payments measure shows best if a nation is paying its own way?
a. Trade balance b. Balance on goods, services, and income c. Reserves account. d. Net errors and omissions account e. Net transfers account