Federal Budget Process Each year, the president sends a federal budget to Congress. The budget undergoes a lengthy approval process until it is signed into law.

VS 1

Section 2

Federal Government Expenditures (cont.)

• Federal budget leads to a budget deficit or a budget surplus.

The Federal Budget for Fiscal Year 2007

Section 2

Federal Government Expenditures (cont.)

• Federal budget expenditures include

– Social Security—considered mandatory spending

– National defense—considered discretionary spending

– Income security

– Medicare

Section 2

Federal Government Expenditures (cont.)

• Federal budget expenditures include

– Health—Medicaid

– Net interest on debt

– Other expenditure categories

Profiles in Economics:Alice Rivlin

Section 2

• Unlike the federal government, some states have a balanced budget amendment.

• States must cut spending when revenues drop.

State Government Expenditures (cont.)

Section 2

• State government expenditures include

– Intergovernmental expenditures

– Public welfare

– Insurance trust and retirement

– Higher education

– Other expenditures

State Government Expenditures (cont.)

State and Local Expenditures

Section 2

• Local governments’ expenditures are

Local Expenditures (cont.)

– Elementary and secondary education

– Utilities

– Public safety and health

– Other expenditures

The Global Economy & YOU:International Education Spending

VS 2

Major Budget Categories The major budget categories vary for federal, state, and local governments. The focus of the federal government is on nationwide programs and expenditures. States pass on much of their budget to local governments and spend the rest on state-level programs. Local governments focus their expenditures on local needs.

Figure 1

Figure 2

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Figure 7

Vocab10

federal budget

annual plan outlining proposed expenditures and anticipated revenues

Vocab11

fiscal year

12-month financial planning period that may not coincide with the calendar year

Vocab12

appropriations bill

legislation authorizing spending for certain purposes

Vocab13

budget deficit

a negative balance after expenditures are subtracted from revenues

Vocab14

budget surplus

a positive balance after expenditures are subtracted from revenues

Vocab15

mandatory spending

federal spending authorized by law that continues without the need for annual approvals by Congress

Vocab16

discretionary spending

spending for federal programs that must receive annual authorization

Vocab17

Medicare

federal health-care program for senior citizens, regardless of income

Vocab18

Medicaid

joint federal-state medical insurance program for low-income people

Vocab19

balanced budget amendment

constitutional amendment requiring government to spend no more than it collects in taxes and other revenues, excluding borrowing

Vocab20

intergovernmental expenditures

funds that one level of government transfers to another level for spending

Vocab21

ambiguity

uncertainty about meaning or value

Vocab22

coincide

to happen or exist at the same time or in the same position

Vocab23

deficit spending

annual government spending in excess of taxes and other revenues

Vocab24

national debt

total amount borrowed from investors to finance the government’s deficit spending

Vocab25

balanced budget

annual budget in which expenditures equal revenues

Vocab26

trust fund

special account used to hold revenues designated for a specific expenditure such as Social Security, Medicare, or highways

Vocab27

per capita

per person basis; total divided by population

Vocab28

crowding-out effect

higher than normal interest rates and diminished access to financial capital faced by private borrowers when they compete with government borrowing in financial markets

Vocab29

“pay-as-you-go” provision

requirement that new spending proposals or tax cuts must be offset by reductions elsewhere

Vocab30

line-item veto

power to cancel specific budget items without rejecting the entire budget

Vocab31

spending cap

limits on annual discretionary spending

Vocab32

entitlement

program or benefit using established eligibility requirements to provide health, nutritional, or income supplements to individuals

Vocab33

mandate

to order or require

Vocab34

instituted

put into action

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