According to the budget philosophy of functional finance,
A)the budget should be balanced annually
B)surpluses should be run during periods of prosperity and deficits should be run during recessions
C)the government should not worry about whether the budget is balanced but worry instead about reaching the potential output level
D)the budget should never be in balance,no matter what
E)the rate of growth in the national debt should equal the rate of growth in the money supply

Question

Quizplus · Accepted Answer

According to the budget philosophy of functional finance, the government should not worry about whether the budget is balanced annually. Instead, the government should focus on reaching the potential output level of the economy. This means that if the economy needs stimulus during a recession, the government can run a deficit. Conversely, if the economy is overheating and nears its potential output level, the government can run a surplus to prevent inflation. This approach prioritizes economic goals over balancing the budget in any given year.

According to the Budget Philosophy of Functional Finance