2. Budget philosophies There are several important philosophies regarding budget balances. One way in which they differ is in terms of the time span over which the budget should be balanced. Another difference among budget philosophies involves whether the budget balance is as important as other economic goals. Which of the following budget philosophies advocates ensuring that the economy reaches its potential output? Functional finance Cyclically balanced budget Annually balanced budget A major problem with the implementation of this philosophy is that it: Magnifies business cycle fluctuations Relies upon government officials to budget for surpluses during boom times in order to cover deficits during recessions Can allow the national debt to burgeon with chronic deficits

4. What have been the various approaches advocated to reform budgeting processes at the state and local levels? 5. What are the five key areas of future state and local budget needs? Which one do you think is the most critical and why? Explain.

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a. In which instance would "crowding out" likely become a concern? OA balanced budget law prevents the government from taking fiscal action during a recession. O Prior-year budget surpluses allow the government to use saved funds to reduce taxes. O In order to increase spending on infrastructure, the federal government decides to borrow funds. b. One result of "crowding out," due to fiscal action, is difficulty saving income for future purchases. O making economic investments. O purchasing stocks and other financial investments.

4. The multiplier effect of a change in government purchases Suppose there is some hypothetical closed economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The marginal propensity to consume (MPC) for this economy is 0.8 and the spending multiplier for this economy is 5 Suppose the government in this economy decides to decrease government purchases by $400 billion. The decrease in government spending will lead to a decrease in income, creating an initial change in consumption equal to This decreases income yet again, leading to a second change in consumption equal to The total change in demand resulting from the initial change in government spending is The following graph shows the aggregate demand curve (AD) for this economy before the change in government spending Use the green line (triangle symbol) to plot the new aggregate demand curve (AD) after the multiplier effect takes place. For simplicity, assume that there is no…

An amendment to the Texas Constitution requires a balanced budget. This means that _____.   A. any increase in government spending must be offset by a decrease in the total funds allocated to the General Revenue budget   B. the legislature cannot approve a budget if it exceeds the projected revenues for the state by more than 30 percent   C. the legislature cannot approve a budget if it exceeds the projected revenues for the state by more than 10 percent   D. any increase in government spending must be offset by an increase in revenue and/or cuts in spending elsewhere in the budget

Figure 4 Expenditures 9000 6000 3000 3000 6000 Disposible Income 1. In Figure 4, how much is government spending when disposable income is 3000? CH-G 9000 2. In Figure 4, how much is government spending when disposable income is 9000?

2. Discretionary fiscal policy Suppose the economy had been producing at potential output but is now producing above it. Which of the following are discretionary fiscal policies that could bring the economy closer to potential output? Check all that apply. ооо Additional spending on bridge repairs A reduction in spending on new road construction A tax cut A tax increase In the preceding scenario, is the discretionary fiscal policy needed to bring the economy closer to potential output an example of expansionary fiscal policy or contractionary fiscal policy? Expansionary Contractionary

2. Assume a given economy has an equilibrium GDP of $360 billion. A. If government spending and taxes both increase by $40 billion, determine the new equilibrium GDP. B. If both G and taxes increase by $40 billion, what impact will these two changes happening at the same time have on the budget? In other words, will these two changes cause a surplus, a deficit, or a balanced budget? C. Solve for the numerical value of the balanced budget multiplier.

6. Explain how built-in (or automatic) stabilizers work. What are the differences between proportional, progressive, and regressive tax systems as they relate to an economy's built-in stability? In a phrase, “net tax revenues vary directly with GDP." When GDP is rising so are tax collections, both income taxes and sales taxes. At the same time, government payouts-transfer payments such as unemployment compensation, and welfare-are ( increasing, decreasing). Since net taxes are taxes less transfer payments, net taxes definitely (rise, fall) with GDP, which dampens the rise in GDP. (Note: Net Taxes = Taxes – Transfer Payments) On the other hand, when GDP drops in a recession, tax collections slow down or actually diminish while transfer payments ( rise, fall ) quickly. Thus, net taxes ( increase, decrease ) along with GDP drops, which softens the decline in GDP. A ( progressive, proportional, regressive ) tax system would have the most stabilizing effect of the three tax systems and the…