Name ________________
AP Government
Public Policy
Economic Policy & The Budget Process of the Federal Government
Directions: Using the document “Understanding the Federal Budget” and your book, look up the
definitions of the following terms and answer the following questions.
Terms:
Deficit –
Surplus-
Balanced budget
National debt –
Gross domestic product (GDP)-
Monetarism–
Keynesiansim–
The Federal Reserve Board (The Fed) –
Monetary policy
Fiscal policy –
BudgetFiscal year –
Budget resolution –
Entitlements –
Income tax –
Progressive income tax Regressive income taxQuestions:
1. Read “Introduction” and “What Is the Budget?”
2. Where the Money Comes From
Where does the federal government get most of its revenue? __________________________
What is the second-highest source of government revenue? ___________________________
What is the third-highest source of government revenue? _____________________________
Where else does the government get its revenue? ___________________________________
What is the total amount of revenue that the government took in in FY2010? ____________
3. Spending
What is mandatory spending? _________________________________________________
What is discretionary spending? _______________________________________________
What percentage of the budget is mandatory spending? Discretionary? _________________
What is the only way Congress can change the amount spent on mandatory programs?
___________________________________________________________________________
What are the three largest mandatory spending programs? ____________________________
What other entitlements are there? ______________________________________________
How much does the government expect to spend in FY 2010? _________________________
What consumes the largest percentage of federal spending? ___________________________
What interest payments does the government have to make? __________________________
4. How Does the Government Create a Budget?
When does the President typically submit his budget to Congress for the next fiscal year?
___________________________________________________________________________
The major steps in the budget process are outlined in this packet. You’ll want to be very
familiar with these steps.
5. Supplemental Spending
What is supplemental spending? ________________________________________________
List three examples of supplemental spending. _____________________________________
What is TARP? _____________________________________________________________
What is the American Recovery & Reinvestment Act? _______________________________
6. Surpluses and Deficits
In what years did the government run a surplus? ___________________________________
In what years did the government run a deficit? ____________________________________
How big was the deficit in FY2009? _____________________________________________
Budget Process – Overview:
 Law requires that by the first Monday in February the President must submit to Congress
the proposed federal budget for the next fiscal year, which begins on October 1st.
 The budget is complicated due the number of agencies within the bureaucracy that
require funding.
 According to the Constitution, Congress has the power of the purse. However, early in
the twentieth century, Congress relinquished some of this power to the President, due to
the increasing complexity of the federal budget.
 The President prepares his overall economic agenda with help from the Secretary of
Treasury and the Council of Economic Advisors.
 The President is responsible for preparing a budget blueprint that is submitted to
Congress. He does this with assistance from the Office of Management and Budget
(OMB). OMB gathers all the funding requests from the numerous agencies and gives
these requests to the President.
 Agency heads will normally request more funding than they received the previous year.
Contemporary presidents, for political reasons, have wanted to cut back on the size of the
federal bureaucracy. Conflict between these agency heads and the President has been the
result.
 The President will propose the budget to Congress, where it is first reviewed and debated
in budget committees in the respective chambers.
 The annual budget proposal is often controversial for a number of reasons. First, taxing
and spending priorities are at the heart of political differences between the two parties.
Second, the President’s budget will often include impoundments, and third, many in
Congress disagree about deficit spending. Finally certain programs like entitlements are
called mandatory spending and cannot be easily cut, leaving the main debate centered on
discretionary spending, like defense and other departments. A certain part of our
spending is called uncontrollable because we cannot anticipate exactly how much it will
cost. Finally, there are often disagreements among policymakers about how to stimulate
the economy. Some want to use fiscal policy while others want to use monetary policy.
 By the end of the 1980’s the national debt had reached trillions of dollars, and since then
Presidents have more actively tried to reduce the debt.
 A law passed in the 1980’s called Gramm-Rudman-Hollings put a cap on the amount of
deficit spending that we can have, but the Court declared most of it unconstitutional. A
Balanced Budget Amendment to the Constitution was proposed but it did not pass.
 If the President and the Congress cannot agree on a budget by the start of the fiscal year,
the government has no authority to spend and may shut down as it did 1996 during
Clinton’s Presidency.
 The yearly budget is a dramatic event for the White House and the Congress. A formal
signing ceremony takes place on White House when the annual budget is complete.