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Chapter 27: Problem 7

(Related to the Apply the Concept on page 969) The following is from a message by President Herbert Hoover to Congress, dated May 5,1932: I need not recount that the revenues of the Government as estimated for the next fiscal year show a decrease of about \(\$ 1,700,000,000\) below the fiscal year \(1929,\) and inexorably require a broader basis of taxation and a drastic reduction of expenditures in order to balance the Budget. Nothing is more necessary at this time than balancing the Budget. Do you think President Hoover was correct in saying that, in \(1932,\) nothing was more necessary than balancing the federal government's budget? Briefly explain.

Short Answer

Expert verified
President Hoover's statement that balancing the federal government's budget was a most necessary act in 1932 is likely reasonable given the challenging economic conditions of the Great Depression. However, the 'most necessary' aspect could be subjective and vary depending on the context and perspective, as other actions like stimulating the economy might have been equally important.

Step by step solution

01

Understand the Context

The statement of President Hoover was given in 1932 which was a period of the Great Depression. It was one of the hardest times financially for the United States and many other countries. Therefore, the aim to balance the federal government's budget can be understood in this context.
02

Evaluate the Statement

Balancing the budget is generally important for any government to maintain financial stability and economic health. A balanced budget signifies that the government is not spending beyond its means. In Hoover's context, this step was particularly important due to the financial hardship the country was facing. Also, as the President, it would've been his responsibility to ensure the country’s financial stability.
03

Draw a Conclusion

While balancing the budget may have been crucial in 1932, other actions like stimulating the economy might have been equally important. It's essential to consider other factors such as unemployment rates, poverty, etc at that time. This question is subjective, and the answer may vary depending on the perspective. However, in the face of a challenging economic period, it's reasonable to say that balancing the budget was certainly a necessity.

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Most popular questions from this chapter

In a column in the Financial Times, the prime minister and the finance minister of the Netherlands argued that the European Union, an organization of 28 countries in Europe, should appoint "a commissioner for budgetary discipline." They said that "the new commissioner should be given clear powers to set requirements for the budgetary policy of countries that run excessive deficits." What is an "excessive" budget deficit? Does judging whether a deficit is excessive depend in part on whether the country is in a recession? How can budgetary policies be used to reduce a budget deficit?

Some economists and policymakers have argued in favor of a "flat tax." A flat tax would replace the current individual income tax system, with its many tax brackets, exemptions, and deductions, with a new system containing a single tax rate and few, or perhaps no, deductions and exemptions. Suppose a political candidate hired you to develop two arguments in favor of a flat tax. What two arguments would you advance? Alternatively, if you were hired to develop two arguments against a flat \(\operatorname{tax},\) what two arguments would vou advance?

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(Related to the Apply the Concept on page 978 ) In 2017 , an article in the New York Times quoted Douglas HoltzEakin, former director of the Congressional Budget Office, as arguing that "with the economy back to near full employment, conventional tax cuts or stimulus spending won't have that much of an effect. What is needed are policies that genuinely augment the supply side of the economy." a. If the economy is at full employment, what economic variables will conventional tax cuts or stimulus spending not affect much? What variables might these policies affect? b. What does Holtz-Eakin mean by "policies that genuinely augment the supply side of the economy"?
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