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U.S. Budget, Recession and Fiscal Policies

The Role of Government: The Federal Government and Fiscal Policy

The U.S. Government Printing Office Published a "A Citizen's Guide to The Federal Budget." While this is not available for more recent years, it has some useful information about the federal budget.

GPO Access: Citizen's Guide to the Federal Budget: Fiscal Year 2001. Retrieved November 15, 2010 from: http://www.gpoaccess.gov/usbudget/fy01/guidetoc.html

For more recent data, the New York Times has an interactive on President Obama's 2011 Budget Proposal and includes information on the 2010 budget:

New York Times: Obama's 2011 Budget Proposal: How It's Spent. Retrieved on November 15, 2010 from: http://www.nytimes.com/interactive/2010/02/01/us/budget.html

Another good reference with more recent data:

Center of Budget and Policy Priorities. Policy Basics: Where do Our Federal Tax dollars go? Retrieved November 15, 2010 from:
http://www.cbpp.org/cms/index.cfm?fa=view&id=1258

Please address the following questions:

1. Summarize the United States Budget. What is the largest source of revenue for the U.S. government? What is the largest expenditure for the U.S.? Do you think these budget priorities are correct? Explain.

2. Use Chart 1-2 from the Citizen's Guide to respond to the following: In 1998, or the last year charted, which of the industrialized nations allocated the smallest share of its GDP to government spending (federal, state, and local combined)? Which industrialized nation allocated the highest percentage of GDP to government spending?

3. Clink on this interactive graphic of the U.S. GDP Growth Rate:

U.S. GDP Growth Rate. Retrieved November 15, 2010 from: http://www.tradingeconomics.com/economics/gdp-growth.aspx?Symbol=USD

Assume you are an advisor to President Obama. How is a recession defined? Is the U.S. currently in a recession? What specific policy tools could be used to stimulate the economy?

4. Finally, one of the greatest debates in economics is between Keynesian Economists who believe that government intervention is necessary to restore the economy to its potential GDP while Classical Economists believe the market will correct itself. There are many resources on this topic from the internet including:

Federal Reserve Bank of San Francisco. Major Schools of Economic Theory: Keynesian School. Retrieved November 15, 2010 from:
www.frbsf.org/publications/education/greateconomists/grtschls.html#A8

Yergin, Daniel and J. Stanislaw. (1998) "The Chicago School" Excerpt from Commanding Heights pp. 145-149. Retreived November 14, 2010 from: www.pbs.org/wgbh/commandingheights/shared/pdf/ess_chicagoschool.pdf

Do you think there are certain economic crises that require government intervention (i.e Great Depression, Auto Industry failure, etc.)? Why or why not?

Solution Preview

The Role of Government: The Federal Government and Fiscal Policy

What is the largest source of revenue for the U.S. government?

Individual Income taxes was the largest source covering 48% or $969B of the entire revenue.

What is the largest expenditure for the U.S.?

Based on the data, the largest expenditure actually is on defense at a staggering amount of $642B amounting (Non-Defense Discretionary added to Defense Discretionary). This is followed by Social Security at $422B of the budget.
Do you think these budget priorities are correct? Explain.
The priorities are not correct. The focus of the budget should be on Education and Social Security. The budget for Non-Defense Discretionary was carefully veiled when in fact it still refer to military spending. Disaggregating discretionary budget into Defense and Non-defense only misdirected any layman who would look at the budget. The crafted budget made it appear that Social Security account has the highest budget priority when close scrutiny would show that it was still the military that is heavily budgeted.

2. Use Chart 1-2 from the Citizen's Guide to respond to the following:

In 1998, or the last year charted, which of the industrialized nations allocated the smallest share of its GDP to government spending (federal, state, and local combined)?

Based on the data presented, these are the industrialized nations that allocated the smallest share of its GDP to government spending: Japan (at more than 30% only), US (more or less 35%), ...

Solution Summary

This solutions looks into the revenue and expenditure of the U.S.Fiscal Policy. Discussions were made on how the government is prioritized. It defines the concept of recession and what specific policy tools could be used to stimulate the economy. The differences in the belief of Keynesian Economists and Classical Economists are also exemplified here. 940 words.

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