Budget philosophies There are several important philosophies regarding budget balances. One way in which they differ is in terms of the time span over which the budget should be balanced. Another difference among budget philosophies involves whether the budget balance is as important as other economic goals. Which of the following budget philosophies advocates keeping the budget in balance every year, except during wartime? Functional finance
Annually balanced budget
Cyclically balanced budget
A major problem with the implementation of this philosophy is that it:
Magnifies business cycle fluctuations
Can allow the national debt to burgeon with chronic deficits
Relies upon government officials to budget for surpluses during boom times in order to cover deficits during recessions

functional finance

Can allow the national debt to burgeon with chronic deficits

Explanation:

Functional finance is a theory developed by Abba P. Lerne during the World War II. It encourages the government's intervention in the economy to achieve its goals and reduce economic insecurity. It is the current budget philosophy in the US

Advantage

It allows the government to stabilise the economy using fiscal policy

Disadvantage

it encourages deficit spending and this can increase the debt of a country

Annually balanced budget is a budget where at the end of every year, revenue must equal expenditure. this type of budget can magnify the business cycle.

A Cyclically balanced budget is when in a recession, the government makes use of expansionary fiscal policy and in a boom, the government makes use of a contractionary fiscal policy to stabilise the economy

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