The Question of a Balanced Budget

Self-Check Questions

How would a balanced budget amendment affect a decision by Congress to grant a tax cut during a recession?

Hint:

The government would have to make up the revenue either by raising taxes in a different area or cutting spending.

How would a balanced budget amendment change the effect of automatic stabilizer programs?

Hint:

Programs where the amount of spending is not fixed, but rather determined by macroeconomic conditions, such as food stamps, would lose a great deal of flexibility if spending increases had to be met by corresponding tax increases or spending cuts.