10. Budget philosophies--Based on Assigned Textbook Reading (ch.12) Aa Aa There

Question

10. Budget philosophies--Based on Assigned Textbook Reading (ch.12) Aa Aa There are several important philosophies regarding budget balancing. One way in which they differ is in terms of the time span over which the budget should be balanced. Another difference among budget philosophies concerns whether the balanced budget is as important as other economic goals. Which of the following budget philosophies advocates ensuring that the economy reaches its potential output? O Functional finance O Cyclically balanced budget Annually balanced budget A major problem with the implementation of this philosophy is that it O May allow the national debt to grow as a result of chronic deficits O Magnifies business cycle fluctuations O Relies upon government officials to budget for surpluses during boom times in order to cover deficits during recessions

Explanation / Answer

1> functional finance

Reason

Functional finance is an economic theory based on effective demand principles and chartalism. It states that government should finance itself to meet explicit goals, such as taming the business cycle, achieving full employment, ensuring growth, and low inflation.

2> Magnifies ...

Reason

One drawback of it is that it may magnify the fluctuation even though those peaks are short-term.

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