South-Western College Publishing - Economics  
Federal Budget Boosts Region
Subject Aggregate Expenditure
Topic Taxes, Spending, and Deficits
Key Words Federal Budget, Regional Growth, GDP
News Story

President Clinton recently announced his fiscal 2000 budget. While interest in the budget typically focuses on national issues, the federal budget has a powerful influence on regional growth and development. This influence stems from specific federal projects that are undertaken in a region, general federal policies that affect economic behavior in an area, and federal spending on goods and services that are produced in the region. The sum of this federal spending can be considerable and be a positive force for economic growth in the region.

The Clinton administration's proposed $1.8 trillion budget contains more than $2 billion in federal support for the Washington D.C. region. Included in this $2 billion are proposals to replace a bridge, to dredge and straighten the Port of Baltimore, to relocate portions of the Food and Drug Administration, and to finish the National Institutes of Health Mark O. Hatfield Clinical Research Center in Bethesda.

Also of importance to the Washington D.C. area, because of its concentration of federal employees, is the Clinton administration's proposal to raise federal salaries by 4.4 percent. This proposal is worth $500 million to area employees. Another item in the federal budget provides for an extension of a $5,000 first-time homebuyer tax credit. Spending on other federal programs such as Medicaid, courts, and prison spending amounts to almost $1 billion.

(Updated April 1, 1999)

Questions
1. Why do regional governments actively pursue increased federal funding for projects and facilities?
2. Using the concept of the simple spending multiplier, describe the consequences of an increase in Aggregate Expenditure.
3. What are some of the factors that determine the size of the multiplier?
4. Why would the multiplier for a region be different than the multiplier for the nation?
Source Spencer S. Hsu and David A. Vise, "Region's Share Includes Millions in New Projects", The Washington Post, February 2, 1999.

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