Suppose the economy is growing at 4% a year, inflation is measured at 0.5% a year, and the federal deficit is relatively high. An economist who suggests that nothing needs to be done is advocating a(n)
A) annually balanced budget.
B) cyclically balanced budget.
C) functional finance approach to federal budgeting.
D) full employment balanced budget.

Question

Quizplus · Accepted Answer

The functional finance approach to federal budgeting suggests that the focus should not be on balancing the budget annually or cyclically, but rather on using fiscal policy to achieve certain economic goals, such as maintaining full employment and stable prices. In this case, the economist who suggests that nothing needs to be done may be advocating for using government spending or taxation policies to support economic growth and employment, rather than worrying about the deficit in the short term.

Suppose the Economy Is Growing at 4% a Year, Inflation