Government budget?

suppose the government's budget is in balance, what would (automatically) happen to that balance if the economy declines into recession? What form of fiscal policy would the government probably adopt? what effects would the automatic and policy adjustments to the budget have on interest rates?

Answer:
If the budget is balanced, then ther is a recession:
1. income tax collections drop (less salaries to tax) and gov't budget goes into the red.
2. gov't unemployment and welfare payments go up (more people out of work) and the budget goes deeper in the red. This is one kind of an automatic policy adjustment.
3. If the gov't is in the red, they have to borrow money - this increaseds demand for money so interest rates will probably go up slightly.

Hope this helps.

There is very little difference between a house hold budget, a company budget, and a government budget except the amounts.

A balanced budget is simply spending 'LESS' money than you take in.

If a family borrows too much it takes extra earnings to pay off added interest.

If lenders want to 'call' {demand payment} a loan it could cause bankruptcy if the family doesn't have sufficient assets to pay off the loan.

Likewise if the Federal reserve bank ever decided to demand payment on the USA's national 9 trillion dollar debt,,,,,,,,,every federal government agency in the USA would collapse due to lack of funds.

The answers post by the user, for information only, FunQA.com does not guarantee the right.

FunQA.com

Government budget?

Topic