Quiz #1 Flashcards
What is Public Budgeting?
Budgeting is the way we allocate resources- as individuals, small or large organizations, or as a society through our federal, state, and local governments.
Why do we “budget”?
It all starts with Scarcity, we live in a world with limited resources. Budgeting can achieve control/transparency, management/efficiency, planning/outcome.
What are ways in which government can affect the economy?
- Government programs can reallocate scarce resources from private to public uses.
- Government programs can redistribute income from one set of private parties to others.
- Government actions can stabilize the economy as a whole.
Private markets perform well against the allocative efficiency benchmark when:
- Responding to wants and needs for private goods.
- Buyers and sellers bear all of (internalize) the economic costs of their decisions and reap all of the economic benefits.
- There is full competition in all markets.
- Buyers and sellers have perfect information.
Private markets fall short of the efficiency benchmark when:
- Responding to wants and needs for public goods.
- Buyers and sellers do not bear the full (externalize) economic cost and/or do not reap all economic benefits.
- There are monopolies.
- Buyers and sellers have imperfect information.
What are the key distinctions of a private good?
- Rival in Consumption: as one person consumes the good there is one less available for others.
- Excludable: easy to deny someone the ability to consume the good unless they pay for it.
What are the key distinctions of a public good?
- Non-rival in Consumption: consumption of the good by one person does not limit the consumption by others.
- Non-excludable: everyone consumes the good whether or not one actually pays to finance it.
What are solutions for Government and Negative Externalities?
- Tax activities that generate negative externality.
- Subsidize activities which reduce the negative externality.
- Regulate the activity.
- Rearrange property rights.
What are solutions for Government and Positive Externalities?
- Subsidize activities that create positive externalities.
- Tax behavior that reduces the positive externality.
- Regulate
- Rearrange property rights
What are solutions for Government and Monopolies?
- Anti-trust
- Public provision of goods subject to natural monopoly.
- Private provision of natural monopoly goods with public subsidy and regulation.
What are the solutions for Imperfect Information?
- Facilitate market solutions and regulate information disclosure.
- Lemons Laws- consumer protections against repeated failure after purchase.
Government Actions to Improve Allocative Efficiency:
- Provide public goods
- Take corrective action in the face of externalities
- Eliminate or regulate monopolies
- Address informational market failures
Measuring the Size of the Economy:
Production and income characterize the economy in terms of the value of goods and services produces and income derived from such production.
What is GDP?
Gross Domestic Product (GDP) is the basic measure of economic output: GDP is the value of the total goods and services produced.
Discretionary Spending vs. Mandatory Spending
Discretionary program: Budget authority that is provided and controlled by appropriation acts and the outlays that result from that budget authority.
Mandatory program: Synonymous with direct spending, mandatory spending is the budget authority provided by laws other than appropriation acts and the outlays that result from that budget authority.
State and Local Government Budgets:
State revenue is dominated by federal transfers and sales and income taxes, like: public welfare, Medicaid, education, and highways.
Local revenue largely comes from property taxes and is dominated by K-12 education.
What are the Formal Macroeconomic Policy Objectives of the Federal Government?
- Reaching towards full employment
- Keeping inflation low
- Seeking steady economic growth
- Seeking reasonable equilibrium in international financial flows
Fiscal Policy vs. Monetary Policy
Fiscal: automatic stabilizers, spending actions, and tax changes
Monetary: changes in the money supply and changes in key interest rates
What are the Four Phases of the Budget Cycle?
- Preparation and submission (executive branch)
- Approval (legislative branch)
- Execution (back to executive)
- Audit and evaluation
What are the Preparation Steps for the Federal Budget?
- Begins in the spring a full year and a half before the start of a new fiscal year.
- Agencies follow initial guidance from President via OMB.
- Agencies draft proposals and are sent to OMB.
- OMB provides change suggestions to agencies.
- Final decisions by President occur in December and is submitted to Congress in February.
- Change in administration may tardy the schedule.
What is the GAO?
In the 1921 Budget and Accounting Act, the Congress created the GAO - General Accounting Office - as an arm of the Congress: to audit executive branch activities.
GAO was renamed Government Accountability Office.
What are the three types of measures?
- Inputs- the amount of resources used.
- Outputs- the things that have been done but do not necessarily result in mission success.
- Outcomes- higher level measures that relate directly to mission success.
What are the three functions of budgeting?
- Control- emphasizes inputs; expenditure ceilings, accountability, and line items
- Management- emphasizes outputs; cost of meeting fixed objectives, efficiency
- Planning- emphasizes outcomes; comparing costs to different objectives, marginal utility
The Evolution of (Federal) Budget Systems to Emphasize Different Objectives:
- Line-item budgeting (1900s)
- Performance budgeting (1940s-1950s)
- Program budgeting (1960s)
- Zero-based budgeting (1970s)
- Performance-based budgeting (current)
