Chapter 10 - Chapter 10 Budgeting What should government...

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Chapter 10 Budgeting What should government do? Who in government should decide budget decisions? How should we decide these issues? V.O. Key Jr: on what basis shall it be decided to allocate X dollars to activity A instead of activity B? Dual roles of the budget- economic role of the budget o Federal budget shapes national economy o Fiscal policy : government policy on taxation and spending Since the 1930s, economists and government recognize tat fiscal policy affects the economy New deal and the compensatory economics Economic terms o Fiscal year : any given budget year o Surplus : more revenues than expenditures in any given budget year; slows economic growth by draining money from the economy o Deficit : expenditures exceeding revenues within a fiscal year; pumps money into the economy and promotes economic growth o Debt: deficit accumulates over time constitutes national debt o Monetary policy : the federal Reserve’s management of te money supply o Stagflation: stagnant growth and inflation o Supply-side economics: the government could increase both its revenues and the economy’s growth, by cutting taxes o Reaganomics Reduce the growth of government spending Reduce marginal tax rates on income from labor and capital Reduce government regulation of the economy
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Control the money supply to reduce inflation Economy shapes the budget o National economy shapes the federal budget o Budget making depends critically on estimating the likely levels of economic growth, unemployment, inflation, and interest rates
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Chapter 10 - Chapter 10 Budgeting What should government...

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