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Chapter 30: Q.19 (page 742)

How would a balanced budget amendment change the effect of automatic stabilizer programs?

Short Answer

Expert verified

Programs where the amount of spending is unfixed would lose flexibility due to increased taxes and reduced spendings.

Step by step solution

01

Step 1.Concept of stabilizer programs

Automatic stabilisers are those that react immediately when economic oscillations begin in order to stabilise the situation.

The term "balanced budget" refers to a budget in which the deficits and surpluses are equal.

02

Step 2. Explanation

The automatic stabiliser programmes are used to act with immediate effect at the start of economic oscillations in order to stabilise the situation, implying that expenditure and taxation are not fixed and determined by economic conditions. If a balanced budget amendment is passed, the automatic stabilizer's flexibility will be lost, and its operation will be disrupted during economic swings.

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Most popular questions from this chapter

Why do automatic stabilizers function 鈥渁utomatically?鈥�

Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in a situation where the economy is producing less than potential GDP and then in a situation where the economy is producing more than potential GDP.

Is it possible for a nation to run budget deficits and still have its debt/GDP ratio fall? Explain your answer. Is it possible for a nation to run budget surpluses and still have its debt/GDP ratio rise? Explain your answer.

True or False:

a. Federal spending has grown substantially in recent decades.

b. By world standards, the U.S. government controls a relatively large share of the U.S. economy.

c. A majority of the federal government's revenue Is collected through personal income taxes.

d. Education spending is slightly larger at the federal level than at the state and local level.

e. State and local government spending has not risen much in recent decades.

f. Defense spending is higher now than ever.

g. The share of the economy going to federal taxes has increased substantially over time.

h. Foreign aid is a large portion, although less than half, of federal spending.

i. Federal deficits have been very large for the last two decades.

j. The accumulated federal debt as a share of GDP is near an all-time high.

Is it possible for a nation to run budget deficits and still have its debt/GDP ratio fall? Explain your answer. Is it possible for a nation to run budget surpluses and still have its debt/GDP ratio rise? Explain your answer.
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