A city budget transmittal memo to the city council included this statement: similar to the 2008...

A city budget transmittal memo to the city council included this statement: similar to the 2008 budget, our 2009 proposed expenditures exceed projected revenues in our levy controlled funds in order to invest cash reserves generated by sound fiscal management back into the community. How would you respond to that approach to budget development.

Expert Solution

Budget: It is a plan for an organization to regulate its expenses in all the further activities and also the expected income for a specific period of time.

Budgeting and fiscal management: Budget deficits occur when the expenses are more than the expected income. In order to cover this fiscal management paves it way.

Here, in the question even in 2008 the same crisis happened and now in 2009 and the city council want to invest cash reserves by sound fiscal management into the community. This approach can be implemented but not immediately succeeding years as this could lead to inflation and increased tax rates in the coming years in a tremendous way as reserves are being used heavily i.e in 2008 and now in 2009.

The another approach as said may be to decrease government spending and increase taxes. But this may be not be much acceptable by the citizens of the nation.

These reserves will be useful to decrease the tax rates to the citizens but here the spending of the government spending has been more so they might use the reserves but probably not immediately instead increase tax rates and make the situation better to prevent chaos.

ekkarill92 answered 10 months ago

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