Fiscal Policy: Government Expenditures and Revenues, Budget, National Debt

Macro-economic choices, particularly in the areas of fiscal policy, are not just about economics but about political philosophies, values and goals. This Case asks you to think about some of these dimensions.

The Congressional Budget Office (CBO) prepares reports for congress. It is a non-partisan office.

read “The Budget Outlook” section of the CBO’s The Budget and Economic Outlook: Fiscal Years 2009 to 2019 normal;”

http://www.cbo.gov/ftpdocs/99xx/doc9957/01-07-Outlook. pdf

The specific information you need for this case is on page 16 in Table 5. However, there is a great deal of interesting information in this document and I encourage you to look through it and see what it contains.

For question 4 you can access the proposals from the President’s Commission on Deficit Reduction.

http://moneywatch.bnet.com/economic-news/blog/daily-money/deficit-reduction-proposals-what-they-could-mean-for-you/156 7/

For the first two questions use the 2011 figures in the budget tables

1. What are the three major categories of revenues for the federal government? Please comment on each and indicate their relative importance to each other. Relative importance can be indicated by dollar amounts, percent of total revenue or expenditure or, though less informative, by ranking.

2. What are the three major categories of expenditures for the federal government? Please comment on each and indicate their relative importance to each other. Relative importance can be indicated by dollar amounts, percent of total revenue or expenditure, or, though less informative, by ranking.

3. Assume you are the Chief Economic Advisor to the President of the United States and the President has asked you to review the deficit reduction proposals that were submitted by his commission (see link above). Choose the two commission recommendations you agree with the most, and the two you disagree with the most, and write an explanation to the President explaining your 4 choices. Please be detailed rather than general in your recommendation.

4. All major economic indicators show the United States is recovering from the recession but that the process is not as strong as previous recoveries have been. If you were the President what would you do right now to help the economy recover so that the unemployment rate decreases faster than it has over the past two years? I would like specific suggestions or at least well defined generalities.

5. Below is a link to the concepts of aggregate demand (AD) and aggregate supply (AD). Use this information to answer parts A thru D on AD and AS (additional links to this area are in the bibliography section of the syllabus):

http://economics.about.com/od/aggregatedemandsupply/ss/aggregate.htm

A. Describe the AD, AS equilibrium point.
B. Assume the federal government reduces its budget deficit by reducing spending, assume nothing else changes, what affect what affect would that have on the AD?
C. American consumers currently have a high, on average, level of credit card debt If consumers decided to reduce their spending on products and services and, instead, used that money to reduce their debt, what affect would this have on AD and AS?
D. When the federal government offered the “cash for clunkers” car program, how did this affect the AD and AS?

 

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