Answer to Question #66562 in Economics for Merjola

Question

Assume you were a newly elected President and your planned expenditures exceeded your receipts. Describe some of the tricks you might use to reduce the apparent budget deficit while maintaining current levels of services and transfers (subsidies). Assume, on the other hand, that you had run on a platform of keeping the growth in total governmental expenditures down to 3 percent. Once in office, you see that circumstances are different from what you had believed, so you would like expenditures to rise by 5 percent. How might you do this while appearing to keep your election promises?

Answer 1

If you are going to reduce the apparent budget deficit while maintaining current levels of services and transfers (subsidies) and you would like expenditures to rise by 5 percent, then you should increase government expenditures and increase taxes simultaneously to keep your election promises.