Budgets and economic choices
The priorities of government are reflected in their budgets. Through the budgetary process, governments consider all competing priorities and then allocate resources to the most important areas. The budget is therefore the central tool of policy making.
One of the roles of the state is to regulate the private sector. This involves setting domains of activity within which the private sector can operate. It also involves making rules by which the private sector must operate. These rules can refer to such concerns as product quality, environmental standards, control of monopolies, and so forth. The state is also involved in guaranteeing that certain social services (such as education) are available to all citizens.
The choices available to government in budgeting are limited by regular business cycles. Such economic fluctuations may expand or limit services enabled by the budget. An expanding, boom economy will permit funding for more priorities. During periods of stagnation or recession, governments must be more careful to make choices between competing priorities.
Changes in the business cycle are characterized by changing employment patterns, industrial productivity, and the availability of tax revenues. When there are periods of deflation, stagnation, or recession, people often lose their jobs and the pressure for services by government is greater.
The following definitions illustrate such conditions:
A boom is a period of fast economic growth, high output, and low unemployment. Consumer confidence leads to increased revenues, resulting from a higher rate of sales made, which in turn enables more taxes to be collected. There is less government spending on unemployment benefits.
A slump is a period when output slows due to reduced demand for goods and services.
A recession is a period when economic growth slows and unemployment increases. Revenues decrease and fewer taxes are collected. Consumer confidence decreases, more people lose their jobs, and more money is expended on basic services and unemployment benefits.
A recovery is a period in which the economy moves from a recession to either stability or a boom.
Additional resource for further exploration
The following link provides a close look at the movement of the business cycle and some of the indicators of that movement.
