Question

WASHINGTON — The House failed on Thursday to advance a constitutional amendment that would require Congress not spend more than the nation collects in revenue. Some conservative lawmakers had hoped a vote on the bill would calm grassroots conservatives who had been fuming about recent high levels of spending. On a mostly party line vote, Republicans failed to advance the bill, 233-184. Normally, legislation requires 218 votes to win approval in the House and can be passed with just Republican votes. The balanced budget amendment, however, required bipartisan support with a two-thirds majority vote because it was a constitutional amendment. Analyze the following situations. The economy goes into a recession. A. What automatically happens to tax revenue and government spending during a recession? (See chapter 27) Why? (Does the budget go into deficit, surplus or stay balanced?) 5 points B. If the balanced budget amendment was in effect, what would the federal government have to do to obtain a balanced budget? 5 points C. What would happen to the recession? Why? (Would the recession improve, get worse or stay the same? 5 points

Answer 1

As we all know during recession the economic activites slow down which causes the fall in GDP so inorder to overcome or in such a situation the tax revenue of government reduces as the government would like to maintain the liquidity with the people by charging them less tax wth the purpose of future investment which will fuels the pace of growth in the economy. Meanwhile government would also like to cut its spending as much as possible as it will lead to a balanced budget which will help in overcoming the phase of recession. Also the revenue of government got reduced in the form of cut in taxes so it will also trigger a cut i the spending as if it doesn't so then there are high chances of worse deficit.

B. If the amendment was in effect then the Fedral government will limit its spendings to the revenue generated over a period of time which causes the budget to remain balanced i.e., there will be no surplus and no deficit. Along with that government would like to raise the bar of tax rate in order to fetch more revenue which will automatically helps the government's spending but also in this case the budget will be remained balanced because of the amendment.

C. Its all government policies which will decide whether the recession gonna get worsen or improves. It can be explained through various points :-

If there will be continuous increase in the expenditure of the government then te recession will get worsen however if the government limit its spending it will improve the condition of recession.
If the interest rates would remain skyrocketing it will continously lead to increase in inflation thereby causing a reduction in demand which worsen the recession more while if such interest rates are lowered to maintain the income in the hands of individual it will lead to increase in their spending thereby causing increase in the demand and hence the condition of recession improves.
So all such decisions of government decides whether the recession improves or get worsen.