All Topics  
Balanced budget

 

 
   Email Print
   Bookmark   Link
 

 

Balanced budget
 
 
  Topics Balanced budget Topic Home

From a Keynesian
Keynesian economics

Keynesian economics The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936....
 point of view, a balanced budget
Budget

Budget generally refers to a list of all planned expenses and revenues. It is a plan for saving and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more good ....
 in the public sector
Public sector

The public sector is the part of economic and administrative life that deals with the delivery of goods and services by and for the government, whether national, regional or local/municipal....
 is achieved when the government equates the revenue
Revenue

In business, revenue or revenues is income that a corporation receives from its normal business activities, usually from the sale of product to customers....
s with expenditure over the business cycle
Business cycle

The term business cycle or economic cycle refers to economy-wide fluctuations in production or economic activity over several months or years, around a long-term growth trend....
s. In other words, a government's budget is balanced if its income is equal to its expenditure. It is a budget in which revenues are equal to spending.

use of the multiplier effect, it is possible to change aggregate demand (Y) keeping a balanced budget.






Discussion
Ask a question about 'Balanced budget'
Start a new discussion about 'Balanced budget'
Answer questions from other users
Full Discussion Forum



Encyclopedia


From a Keynesian
Keynesian economics

Keynesian economics The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936....
 point of view, a balanced budget
Budget

Budget generally refers to a list of all planned expenses and revenues. It is a plan for saving and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more good ....
 in the public sector
Public sector

The public sector is the part of economic and administrative life that deals with the delivery of goods and services by and for the government, whether national, regional or local/municipal....
 is achieved when the government equates the revenue
Revenue

In business, revenue or revenues is income that a corporation receives from its normal business activities, usually from the sale of product to customers....
s with expenditure over the business cycle
Business cycle

The term business cycle or economic cycle refers to economy-wide fluctuations in production or economic activity over several months or years, around a long-term growth trend....
s. In other words, a government's budget is balanced if its income is equal to its expenditure. It is a budget in which revenues are equal to spending.

Balanced Budget Multiplier

Because of the multiplier effect, it is possible to change aggregate demand (Y) keeping a balanced budget. The Government increases its expenditures (G), balancing it by an increase in taxes (T). Since only part of the money taken away from households would have actually been used in the economy, the change in consumption expenditure will be smaller than the change in taxes. Therefore the money which would have been saved by households is instead injected into the economy, itself becoming part of the multiplier process. In general, a change in the balanced budget will change aggregate demand by an amount equal to the change in spending.


A balanced budget occurs when the Federal deficit = $0. Taxes paid to the government = government spending. The government neither adds money to, nor subtracts money from, the economy. If state and local governments, businesses and private individuals do not add money to the economy, the total amount of money in the economy remains static.

When the total amount of money in the economy remains static, the smallest inflation reduces the real value of money in the economy. Example: Assume the total amount of money in an economy were $100 trillion and inflation were only 3%. If no new money were created via federal deficit spending, the total real value of federal money in the economy would fall $3 trillion.

After five years, the real value of federal money in the economy would be only $86 trillion -- a $14 trillion drop!

See also

  • Balanced Budget Amendment
    Balanced Budget Amendment

    The Balanced Budget Amendment is any one of various proposed constitutional amendments to the United States Constitution which would require a balance in the projected revenues and expenditures of the Federal government of the United States....
     (United States government)