cyclically balanced budget

Examples of cyclically balanced budget in the following topics:

• Arguments for and Against Balancing the Budget

  • Balanced budgets, and the associated topic of budget deficits, are a contentious point within both academic economics and politics.
  • A balanced budget, particularly a government budget, is a budget with revenues equal to expenditures.
  • A cyclically balanced budget is a budget that is not necessarily balanced year-to-year, but is balanced over the economic cycle, running a surplus in boom years and running a deficit in lean years, with these offsetting over time .
  • John Maynard Keynes founded the Keynesian school, which promotes balanced governmental budgets over the course of the business cycle as opposed to annual balanced budgets.
  • Describe arguments against maintaining a balanced budget in the United States

• Problems of Long-Run Government Debt

  • However, even Keynesians that support deficit spending during recessions advise that governments balance this deficit spending with surpluses during the eventual economic boom.
  • This is known as a cyclically balanced budget; the government runs a deficit during recessions and lean years but a surplus during periods of significant growth.
  • Since Congress is responsible for making budgetary, spending and taxation decisions, and because these elected officials may be disinclined to do anything that would hurt their chances to be re-elected, taking the necessary steps to balance out the periods of deficit spending during economic boom is difficult.

• Effect of a Government Budget Deficit on Investment and Equilibrium

  • A government's budget balance is determined by the difference in revenues (primarily taxes) and spending.
  • A positive balance is a surplus, and a negative balance is a deficit.
  • A cyclical deficit is a deficit incurred due to the ups and downs of a business cycle.
  • By definition, the cyclical deficit will be entirely repaid by a cyclical surplus at the peak of the cycle.
  • Unlike the cyclical budget deficit, a structural deficit is the result of discretionary, not automatic, fiscal policy.

• The Balance of Trade

  • The twin deficits hypothesis is a concept from macroeconomics that contends that there is a strong link between a national economy's current account balance and its government budget balance.
  • If (T-G) is negative, we have a budget deficit.
  • Thus, budget deficits and trade deficits go hand-in-hand .
  • The twin deficits hypothesis implies that as the budget deficit grows, net capital outflow from a country falls.
  • The red line represents net imports, which is equivalent to the negative balance of trade, and the black line represents net borrowing, which is equivalent to the government budget deficit.

• Arguments For and Against Fighting Recession with Expansionary Fiscal Policy

  • When taxes equal government expenditures, the government has a balanced budget.
  • Increasing government spending, creating a budget deficit, and financing the shortfall through debt issuance are typical policy actions in an expansionary fiscal policy scenario.
  • When the government runs a budget deficit, funds will need to come from public or foreign borrowing.

• The budget constraint: balancing income, consumption, and saving across time

  • A budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income.
  • Consumer theory uses the concepts of a budget constraint and a preference map to analyze consumer choices.
  • The rise of models related to intertemporal budget constraints were in response to the failures of the economics pioneered by John Maynard Keynes to predict consumption.
  • Explain how agents make consumption and savings decisions subject to multiperiod budget constraints.

• Fiscal Policy -- Budget and Taxes

  • Each year, the president proposes a budget, or spending plan, to Congress.
  • This budget process often takes an entire session of Congress; the president presents his proposals in early February, and Congress often does not finish its work on appropriations bills until September (and sometimes even later).
  • The overall level of taxation is decided through budget negotiations.
  • Although Americans allowed the government to run up deficits, spending more than it collected in taxes during the 1970s, 1980s, and the part of the 1990s, they generally believe budgets should be balanced.

• Financing the US Government

  • It is important to note that when the government spends more than the tax revenue it collects, the government is operating at a deficit and will have to borrow funds to finance operations until taxes can be increased to return the government spending to a balanced budget.

• The Global Economy

  • To help countries with unmanageable balance-of-payments problems, the Bretton Woods conference created the International Monetary Fund (IMF).
  • Traditionally, countries that turned to the IMF had run into trouble because of large government budget deficits and excessive monetary growth -- in short, they were trying to consume more than they could afford based on their income from exports.
  • The IMF also acknowledged in the late 1990s that its traditional prescription for countries with acute balance-of-payments problems -- namely, austere fiscal and monetary policies -- may not always be appropriate for countries facing financial crises.

• Recessions

  • Under ideal conditions, a country's economy should have the household sector as net savers and the corporate sector as net borrowers, with the government budget nearly balanced and net exports near zero.
  • Policy responses are often designed to drive the economy back towards this ideal state of balance.