Question

3. LIST THE THREE FISCAL POLICY ACTIONS THE FEDERAL GOVERNMENT CAN DO TO REDUCE AGGREGATE DEMAND TO LESSEN INFLATION.

                        1.

                        2.

                        3.

4. LIST THE THREE FISCAL POLICY ACTIONS THE FEDERAL GOVERNMENT CAN DO TO INCREASE AGGREGATE DEMAND TO LESSEN UNEMPLOYMENT.

                        1.

                        2.

                        3.

5.   A CONSTITIONAL AMENDMENT HAS BEEN PROPOSED THAT WOULD REQUIRE CONGRESS TO BALANCE THE BUDGET EACH YEAR.

IS IT POSSIBLE TO BALANCE THE BUDGET EACH YEAR?

Yes or No

IS IT DESIRABLE? (THIS IS AN OPINION QUESTION) LIST 3 PROS AND 3 CONS FOR YOUR ANSWER-

Answer:

Answer 1

Answer 3. The following are the three fiscal policy actions that FED can do to reduce agreggate demand to decrease inflation:

1.Decreasing the consumption level by imposing income taxes or payroll taxes on the level of income , an increase in taxes on the level of income reduces the disposable income hence leading to reduced aggregate demand.

2. Decreasing investment spending by reducing after-tax profits through increase in business taxes, which will reduce the investment component of agreggate demand.

3. Decreasing government purchases on goods and services i.e reduce Federal Government spending on infrastructure, social goods.

Answer 4. The following are the three fiscal policy actions that FED can do to increase agreggate demand to decrease unemployment.

1. Firstly, the government can increase its expenditure on creating employment opportunities ,social security schemes, and providing subsidies to firms to encourage long term employment contracts.

2. Reduction in the tax rate will also help boost the aggregate demand by increasing the level of disposable income and thus increase in demand for goods and services.

3. Providing boost to the exports sector so that more export companies hire workers and thus lead to an increase in the employment level.

Answer 5.

The cons of balanced budget would be .

1.Firstly when the economy slows, federal revenues decline and the cost of unemployment insurance and other social programs increases, causing deficits to rise. Instead of letting the “automatic stabilizers” such as lower tax collections, unemployment benefits to cushion a weak economy, this amendment would force policymakers to cut programs, raise taxes, which would result in a self harming spiral because an increase in taxes would lead to higher deficits, which would force policymakers to cut programs or raise taxes more and hence weaken the economy more.

2. One of the balanced budget requirement is that federal expenditures in any year must be offset by revenues collected in that same year which will result in inability of Social Security to draw the balances it had collected in previous years to pay benefits in a later year and also lead to reduction in accumulation of these funds.

3. The level of unemployment will also increase exponentially because of absence of automatic stablizers, would create volatility in the job market pushing millions into unemployment as the inability of taxes to stabilize the economy will also lead to volatile income levels hence creating uncertainity in job market.

The pros of Balanced Budget are :

1.When there is a budget deficit, it means that the government must borrow money to cover the gap between its expenses and its revenue and over time this borrowing adds up, and interest charges from lenders also increases, increase the cost of borrowing even further. A balanced budget means there's no need to borrow money, and therefore no need to pay it off in the future, thus leaving the government with alot of money for other purposes.

2.The term balanced budget sometimes applies to any budget that doesn't have a deficit, This means that balanced budgets can also have surpluses. A budget surplus cushions the economy against emergency spending and also gives the government flexibility with the money, such as investing in public programs, offering tax concessions to stimulate the economy.

3.Producing a balanced budget requires detailed supervision of the minor items in the budget. This means that lawmakers who propose and vote on budgets have opportunities to question the importance of every expense, and a corresponding opportunity to seek increased revenue from existing sources already in the budget. This improves the governance and accountability aspect of the government as well.