Question

What is your understanding of governmental economic goals ?

How does budgeting move us closer to or farther away from these goals?

Answer 1

The federal government is pursuing policies aimed at creating a healthy economy that is not an easy task for all Americans. An economic policy that benefits one segment of society could be detrimental to another. Maintaining inflation under control by raising interest rates makes it difficult for businesses to get capital to expand and hire additional workers; the rate of unemployment may increase. On the other hand, low interest rates can lead to inflation as spending increases; as prices rise, most workers find their pay rises meaningless. Elected officials find that the only way they can reach agreement on any aspect of it is to work out compromises because of the complexity of economic policy. Even a president whose party controls both Congress houses find it hard to get all that the branch of the executive wants. For example, trade-offs, accepting somewhat higher inflation in order to keep business expansion going is essential for economic policy.

The federal government seeks to achieve three policy goals in order to maintain a strong economy: stable wages, full employment, and economic growth. The federal government has other priorities to ensure sound economic policy in addition to these three policy goals. These include low and manageable interest rates, a balanced budget (or at least a budget with a reduced budget deficit) and a balance of trade with other countries.

The value of money is reduced when prices for goods and services rise sharply, and it costs more to buy the same things. Inflation is called this condition. Prices remain at the same rate while inflation is kept low. Circumstances beyond the control of the government may affect prices. A prolonged drought or early freeze in the corn belt that hits Florida's orange crop creates shortages that lead to higher prices. Higher prices can create inflationary prices across the economy for certain critical goods, such as oil. Absolute full employment can not be achieved; people either leave their jobs or are unable to work for a variety of reasons at any given time. Full employment is considered to be an unemployment rate, the percentage of unemployed labor force of 4 percent or less. The rate of unemployment varies between regions and states. California's rate in the early 1990s, for example, was higher than the national average due to cutbacks in the aerospace industry and out - of-state businesses.

Smaller government advocates have the opposite view. They explain that government is too large and that higher spending undermines economic growth by transferring additional resources from the economy's productive sector to government, making less efficient use of them. They also warn that an expanding public sector complicates efforts to implement policies that promote growth such as fundamental tax reform and personal retirement accounts =because critics can use the existence of budget deficits as a reason for opposing policies that would reinforce the economy.

Government spending requires expensive funding options. Without first taking that money from someone, the federal government can not spend money. There are adverse consequences for all the options used to finance government spending. Taxes discourage productive behavior, especially in the current U.S. tax system, which imposes high tax rates on employment, savings, investment, and other forms of productive behaviour. Borrowing consumes capital that would otherwise be available for private investment and may result in higher interest rates in extreme cases. Inflation debases the currency of a nation, causing widespread distortion of the economy.