This disagreement led to a two-week shutdown of the federal government and got close to the deadline where the federal government would default on its Treasury bonds. Finally, however, a compromise emerged and default was avoided. This shows clearly how closely fiscal policies are tied to politics. Balanced budget amendments are a popular political idea, but the economic merits behind such proposals are questionable.
Most economists accept that fiscal policy needs to be flexible enough to accommodate unforeseen expenditures, such as wars or recessions. While persistent, large budget deficits can indeed be a problem, a balanced budget amendment prevents even small, temporary deficits that might, in some cases, be necessary.
What are some of the arguments for and against a requirement that the federal government budget be balanced every year? Skip to content Chapter Government Budgets and Fiscal Policy. Learning Objectives By the end of this section, you will be able to: Understand the arguments for and against requiring the U. No Yellowstone Park? Self-Check Questions How would a balanced budget amendment affect a decision by Congress to grant a tax cut during a recession?
How would a balanced budget amendment change the effect of automatic stabilizer programs? A comparison of the actual figures reflected in the budget to the baseline or standard figures that are estimated is known as a budget variance analysis. A favorable variance occurs when the actual result is better than the projection made; that is when the revenues are higher and the expenses are lower than the estimated figures.
A negative variance occurs when the actual result fails to meet the projected figures; that is when the revenues are lower, and the expenses are higher than what was estimated.
There are many imponderables due to which it can get complex to strike a balance between the revenues and the expenditure or achieve a balanced budget. So, more often than not, there will be either a deficit or a surplus. With the help of a balanced budget, governments can avoid excessive spending and focus their funds on those areas and services that require the funds. In addition, the budget surplus would help them to offer funds for emergencies. What are your thoughts about the importance of a balanced budget in having a strong economy?
Share your opinion with us in the comment section below. What is Accumulated Depreciation? Leave a Reply Cancel reply. Your email address will not be published. Table of Contents. Definition, Objectives and Methods. Leave a Reply Cancel reply Your email address will not be published. How would a balanced budget amendment affect a decision by Congress to grant a tax cut during a recession?
The government would have to make up the revenue either by raising taxes in a different area or cutting spending. How would a balanced budget amendment change the effect of automatic stabilizer programs?
Programs where the amount of spending is not fixed, but rather determined by macroeconomic conditions, such as food stamps, would lose a great deal of flexibility if spending increases had to be met by corresponding tax increases or spending cuts. What are some of the arguments for and against a requirement that the federal government budget be balanced every year?
During the Great Recession of —, what actions would have been required of Congress and the President had a balanced budget amendment to the Constitution been ratified? What impact would that have had on the unemployment rate? Skip to content Government Budgets and Fiscal Policy.
Learning Objectives By the end of this section, you will be able to: Understand the arguments for and against requiring the U. No Yellowstone Park? Key Concepts and Summary Balanced budget amendments are a popular political idea, but the economic merits behind such proposals are questionable. Self-Check Questions How would a balanced budget amendment affect a decision by Congress to grant a tax cut during a recession?
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Your Practice. Popular Courses. Key Takeaways Many mainstream economists don't believe that the U. A minority of economists are gaining attention with the argument that it doesn't matter whether a government that prints its own money balances its budget.
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