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 budget should be whatever is necessary to have the economy operate at potential GDP
D)the budget should never be in balance
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 functional finance, the government budget should be whatever is necessary to have the economy operate at potential GDP, meaning that deficits may be necessary during recessions to stimulate demand and surpluses may be necessary during times of prosperity to avoid inflation. The philosophy does not necessarily advocate for a balanced budget annually, nor does it suggest that the budget should never be in balance. It also does not prescribe a specific relationship between the national debt and money supply growth.

According to the Budget Philosophy of Functional Finance,_____