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15.3b Balancing the Budget

Though it is ideal for the budget to be balanced or to show a small surplus, there have been budget deficits during the past four decades. When the government expenditure exceeds the amount it receives in taxes, there is a budget deficit. Owing to tax cuts and an increase in military expenditure, there was a sharp increase in budget deficit in the early 1980s. As a result, the Balanced Budget and Emergency Deficit Control Act in 1985, also known as the Gramm-Rudman-Hollings bill was passed, in order to reduce the deficit through automatic spending cuts. However it was not very effective as entitlement programs like social security and Medicare were excluded from the cuts.

The need for a reform in the budget process is keenly felt by many, who consider that a balanced budget could be achieved by a constitutional amendment. However, most Americans do not favor cuts in entitlements, which form an important part of the budget.

Exhibit 15.2
The Government Dollar


15.0 - Introduction
15.1 The Goals of Economic Policy

15.2 Theories of Economic Policy
15.3 The Federal Budget
15.4 Taxation and Spending
15.5 International Economic Policy

Chapter 16

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