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    Requiring states to run balanced budgets

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    Some states are required to balance their budgets. Is this measure stabilizing or destabilizing? Suppose all states were committed to a balanced budget philosophy and the economy moved into a recession. What effects would this philosophy have on the size of the federal deficit?

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    Requiring states to run balanced budgets is destabilizing because this renders the states unable to respond to economic fluctuations (business cycles). If all ...

    Solution Summary

    Requiring states to run balanced budgets is briefly debated in terms of advantages and disadvantages.