Magruder’s American Government
1st Edition
ISBN: 9780133306996
Textbook solutions
All Solutions
Section 12-4: Spending and Borrowing
Exercise 1
Solution 1
Solution 2
Step 1
1 of 4
The first event that had a key impact on increasing the role of the state was **the Great Depression**.
Step 2
2 of 4
The Great Depression was a global economic crisis that began in 1928 in America and left very severe consequences on the economy. There was deflation, unemployment, and a decline in the production of goods and services, which lasted until 1939.
Step 3
3 of 4
Prior to this crisis, the government’s influence on the country’s economy was very modest, so the government could not handle the crisis in the best way. The government then realized that it needed to increase its role in the economy, and that some degree of regulation was necessary for the security of the system.
Step 4
4 of 4
The next key event that had a great impact on the economy was **World War II**. The war primarily affected the economy of the state of Texas, which prospered economically because it reoriented itself to the military industry and became the base for many military institutions. A large number of people found employment, the country finally began to record economic growth, and it also managed to solve its long-standing debts.
Step 1
1 of 4
Major events that led to the government involving more in national economics were the **Great Depression and World War II**. These events left the government with no choice but to step in and take matters into its own hands.
Step 2
2 of 4
Prior to the Great Depression, the government was not involved in the economy as much as after the event. From then on, involvement in economics increased with a national goal of preserving and securing the nation. The government, to some extent, took advantage of World war II by increasing employment through the military sector.
Step 3
3 of 4
Following the 1930s Great Depression, the government implied the New Deal, Social Security Act, Revenue Act, and Patient Protection and Affordable Care Act.
Step 4
4 of 4
With the New Deal, legislation put the federal government as the head of restoring the economy. With the Social Security Act pass, the elderly, unemployed, children, single mothers, and blind individuals were all provided with assistance from the government. The Revenue Act cut down the rate of taxes. National health care was established with the act of Patient Protection and Affordable Care.
Exercise 2
Solution 1
Solution 2
Step 1
1 of 7
**The Office of Management and Budget (OMB)** is the agency in charge of budgeting and is under the jurisdiction of the President’s Office.
Step 2
2 of 7
All other federal agencies submit their budgets to this agency for audit and approval. OMB organizes budget hearings in order to get better acquainted with the financial expectations of federal agencies.
Step 3
3 of 7
After all the analysis, the OMB usually revises the proposed budgets in the direction of reduction and forms a budget document that the executive sends to the legislature for adoption.
Step 4
4 of 7
If OMB only approved the financial plans of federal agencies without detailed insight and establishing their justification, budget expectations would certainly exceed the revenues that can be collected.
Step 5
5 of 7
In that case, there would not be enough funds to finance the work of the executive, so there would have to be loaning. Considering that interest is paid on the borrowed money, that would increase the state debt and it is certainly not a good direction for managing state finances.
Step 6
6 of 7
We could find a small advantage in this adoption of the budget in the fact that in this way the procedure would be significantly shortened and it would be adopted in a shorter period of time. The regular procedure is quite long and lasts about 18 months.
Step 7
7 of 7
This advantage could not justify all the disadvantages that would occur if budget funds were allocated without any revision.
Step 1
1 of 3
An office that regulates the financial performance of federal agencies and oversees the budget is the **Office of Management and Budget** (OMB).
Step 2
2 of 3
The whole point of reviewing the agency’s budget requests is to determine whether the budget is too risky and if the financial expectations will make the required and used budget a beneficial move that results in a surplus.
Step 3
3 of 3
Therefore, due to the numerous agency-planned actions requiring a budget, **it is hardly possible for all the agencies to spend the budget and generate a higher revenue** than the approved and used funding. Accepting all of the budget requests would probably lead to a deficit, which is not desirable. That is the reason why OMB exists. It is necessary because it regulates, analyzes and approves budgets. With the OMB reviewing and approving budgets, mistake are more avoidable, and mistakes, in this case, are costly.
Exercise 3
Solution 1
Solution 2
Step 1
1 of 7
The budget formation process is complex and takes a long time, about 18 months.
Step 2
2 of 7
All federal agencies prepare a budget proposal for their funding and submit that proposal to the agency in charge of budgeting – the **Office of Management and Budget (OMB).**
Step 3
3 of 7
OMB analyzes the justification of the budget, organizes budget hearings and makes revised budget proposals. All budget proposals constitute a budget document that is part of the general program of the executive and is sent to the legislature for adoption.
Step 4
4 of 7
This proposal therefore contains the budget of the executive branch, and the draft budget of the legislative branch is prepared by the Congress itself. The budget proposal for the federal courts is drafted by the **Administrative Office of the United States Courts.**
Step 5
5 of 7
Once all budget proposals have been submitted to Congress, its committees begin their analysis. The **Congressional Budget Office (CBO)**, which is in charge of economic analysis and data, has a significant role in this process. Also, various lobbyists of interest groups that are interested in specific areas are involved in this process.
Step 6
6 of 7
After all the analysis, Congress votes and approves the budget. Further, Congress forms 13 appropriations bills which it submits for signature to the President.
Step 7
7 of 7
If the President signs appropriations bills, they are considered approved and that is where the budget formation process ends.
Step 1
1 of 6
The** Federal Budget** has an official procedure of **five steps**. **Congress condones a participatory process** to approve the budget that aims to solve matters important to society.
Step 2
2 of 6
The **first step** happens every year in February when the president submits the requested budget. A president’s request contains requests for funding from all federal agencies. The budget also contains the president’s budget priorities for the upcoming year.
Step 3
3 of 6
The **second step** is when the Senate Committee and the House Committee make resolutions for the requested budget. In this step, they also set the spending limit. Both houses come up with resolutions whose differences are then further resolved.
Step 4
4 of 6
In **step three**, the House and Senate make appropriations of the Bills. Both houses precisely denote the funds and evaluate investments for all programs. All committees are divided into 12 subcommittees. When the subcommittees write the appropriations for the bills, the bills are passed to the Committee that makes final appropriations. Finally, the bills go for a review to the House and Senate.
Step 5
5 of 6
In the **fourth step**, both houses vote on appropriations of the Bills. The differences between the house are resolved in this step with the help of the conference committee. After the reconciled version of Bills is created, the House and Senate vote on identical Bills.
After the vote, appropriation Bills are sent to the president.
After the vote, appropriation Bills are sent to the president.
Step 6
6 of 6
In the **fifth step**, the president has to sign all of the appropriation bills for them to become officially enacted. The procedure is then finished. To note, the president has the power to veto the bills.
Exercise 4
Step 1
1 of 5
In addition to the income they receive from taxes, the Federal Government can also obtain funds through loaning.
Step 2
2 of 5
In order for the loan to be realized, it needs to get the approval of the Congress.
Step 3
3 of 5
Raising funds in this way is less favorable than taxes because interest is paid on the borrowed money. Although that interest is lower than the interest in the private sector, because the state is a pretty strong guarantor that the loan will be repaid, taxpayers will still eventually repay that loan and interest.
Step 4
4 of 5
However, the repayment of these loans is not as obvious and tangible as the payment of taxes. Paying taxes is much more visible to taxpayers than repaying government debts.
Step 5
5 of 5
For these reasons, politicians who run the government turn more often to additional borrowing than additional taxation. In this way, they take care of their re-election.
Exercise 5
Step 1
1 of 4
**Public debt** is a consequence of federal government borrowing and it represents all the outstanding debts of the state – borrowed money and interest.
Step 2
2 of 4
An increase in public debt is evident in the United States. Although there are certain statutory limits for the maximum amount of borrowing, they are changed and adjusted to allow for additional borrowing.
Step 3
3 of 4
Opponents of extensive government borrowing believe that they are the result of inefficient government and that at some point they will be a significant problem for future generations.
Step 4
4 of 4
This opinion is realistic because it is impossible to borrow indefinitely without serious consequences. Governments should better handle finances and try to balance tax revenues and costs, regardless of the fact that taxation is unpopular with citizens. The welfare of society should be a core value for politicians and always ahead of their concern for re-election.
unlock