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Fiscal actions that impact the federal budget

Suppose that you are economic adviser to President Bush, "propose two actions that the administration should take if the budget is in surplus that will protect the surplus. Propose two actions if the budget is in deficit to bring it out of deficit. What would be the impact on the U.S. economy for each of your recommendations?"

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Two simple approaches can be taken to reducing a deficit: cutting spending or increasing taxes. A short-term approach is to cut taxes or increase government spending. Each additional dollar of government spending becomes income for those who supply the initial increase in demand for public goods and services. In turn some of that increase in income will be spent, raising the incomes of those who satisfy this second wave of increased demand. This cycle continues in such a way that government spending is said to have a multiplier effect. Lowering ...

Solution Summary

Two actions that will protect a budget surplus or bring the budget out of deficit, and the impact of these actions on the economy.