Federal budget

Definition

The federal budget is a financial plan that outlines the government's expected revenues and expenditures for a specific fiscal year. It plays a crucial role in shaping economic policy, influencing spending priorities, and determining how resources are allocated across various programs and agencies. The budget reflects the government's goals and priorities, impacting everything from social services to defense spending.

5 Must Know Facts For Your Next Test

1. The federal budget is proposed by the President and must be approved by Congress before it can be implemented.
2. The budget process involves multiple steps, including budget requests from agencies, congressional hearings, and negotiations over appropriations.
3. Discretionary spending, which is determined by annual appropriations, accounts for a portion of the budget, while mandatory spending is required by existing laws.
4. The federal budget can significantly impact economic growth and stability by influencing levels of public investment and consumption.
5. Fiscal policy decisions made through the federal budget can have long-term implications for national debt and economic inequality.

Review Questions

• How does the federal budget process begin and what role does the President play?
  • The federal budget process begins when the President submits a proposed budget to Congress, typically by the first Monday in February. This proposal outlines expected revenues and expenditures for the upcoming fiscal year and reflects the administration's policy priorities. Congress then reviews the proposal, holds hearings, and ultimately makes revisions before passing a budget resolution that sets overall spending limits.
• Discuss the implications of discretionary versus mandatory spending within the federal budget.
  • Discretionary spending includes funding that Congress allocates on an annual basis through appropriations bills, affecting areas like education, defense, and transportation. In contrast, mandatory spending is dictated by existing laws, covering essential programs such as Social Security and Medicare. The balance between discretionary and mandatory spending affects how flexible the federal budget can be in responding to economic challenges or shifting priorities.
• Evaluate how changes in the federal budget can influence broader economic conditions and societal outcomes.
  • Changes in the federal budget can profoundly influence economic conditions by determining levels of public investment, consumption, and taxation. For example, increasing federal spending during a recession can stimulate economic growth and job creation, while cuts to essential services may exacerbate inequality and reduce overall welfare. The allocation of resources through the budget also shapes societal outcomes by prioritizing certain programs over others, affecting health care access, education quality, and infrastructure development.

Related terms

Deficit: A deficit occurs when the government spends more money than it receives in revenue during a given fiscal year.

Surplus: A surplus happens when the government collects more revenue than it spends, allowing for the possibility of debt reduction or increased funding for programs.

Appropriations: Appropriations are specific amounts of money that Congress allocates to various government departments and programs as part of the federal budget.