Question

The federal government calculates its budget on a fiscal year that begins each year on October 1 and ends the following September 30. At the beginning of the 2003-2004 fiscal year, the Department of Finance forecast that the federal budget surplus for the fiscal year would be $4.0 billion. The actual budget surplus for the fiscal year was $9.1 billion. Federal expenditures were $1.7 billion less than the Department had forecast, and federal revenue was $1.5 billion more that the Department had forecast. The remainder of the surplus came from lower-than-forecast debt charges. a) Is it likely that the economy grew faster or more slowly during fiscal 2003-2004 than the Department of Finance had expected? Explain your reasoning. b) Suppose that the federal government was committed to balancing the budget each year. What actions of the government would have led to a balanced budget? And what will be the economic consequences? Explain. c) Does the surprise surplus during fiscal 2003-2004 provide any insight into difficulties that might arise in trying to balance the budget every year? Explain.

Answer 1