How can the government try to prevent a recession, while trying to maintain a balanced budget?
To stimulate the economy, while maintaining a balanced budget, the government can increase spending and increase taxes by an equivalent amount. This pays for the spending increase by raising taxes. The economy will grow, but by less than either government spending or tax multipliers. With balanced-budget fiscal policy, real GDP will increase by the amount of the balanced-budget spending increase. The value of the balanced-budget multiplier is one. 6. What is the federal deficit? How does it differ from the national debt? The federal deficit is the amount by which government expenditures exceed receipts. The national debt is the accumulated debt from past deficits. In 1997, the last year in which there was a deficit, the annual federal deficit was $53.3 billion. In 2000, the national debt was approximately $5.7 trillion. 7. What was the federal budget situation in the past few years? In the past few years, the federal budget has actually been in a position of surplus; in 2000, the surpl
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