A balanced budget amendment From time to time it has been proposed that a law or

Question

A balanced budget amendment    From time to time it has been proposed that a law or constitutional amendment be passed that will force the federal government to balance its budget every year, as many state and local governments are required to do. How would such a requirement affect the conduct of discretionary fiscal policy? Automatic fiscal policy? If you were designing such an amendment, do you think it would be better to require that the actual budget deficit be kept at zero each year, or should the aim be only to keep the structural deficit at zero? Discuss.

Explanation / Answer

Here is my previuos answer just in case

This would affect the conduct of the discretionary fiscal policy because its main goal is to manipulate government purchases, taxes, and payment transfers for the sake of macroeconomic gains such as employment or economic stability. It affect would be that all of these activities would now have to be monitored and approved rather than just being decided by the property itself, basically a second stage in the decision making process. The same goes for the Automatic fiscal policy which also regulates government spending decisions, it too would need further regulation under such a proposed amendment or law.

If I was designing this amendment I would keep the actual deficit at zero at all costs. Aiming to keep only the structural deficit at zero poses serious long term problems. This is because the debt eventually builds up while the country in functioning due to interest rates that must be repaid that do not actually get repaid and just pile up into more debt. If the debt is kept at zero to begin with then the will be no interest lurking around for the long term which could potentially pose dangerous financial problems in the future and lead to further economic instability. The key is to not have any debt at all.

Good luck.

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