Section 2 - Legal Foundation of the Government Financial Environmential

Question 1

Popular Sovereignty

Answer 1

The people hold final authority over the government and public policies.

Question 2

Government sovereignty is derived from the people and expressed in…

Answer 2

Constitutions or, at the local level, in charters.

Question 3

Which Article of the U.S. Constitution gives the national government the power to coin money and prohibits the states from doing so?

Answer 3

Article I

Question 4

Fiscal and Monetary power of Sovereign entities

Answer 4

Governments can:

1. tax citizens & corporate entities to raise revenue
2. establish budgets and spend public funds for authorized purposes
3. borrow funds for Gov. operations and capital investments
4. create money (national Gov. only)

Question 5

What is the U.S. Federal Reserve System?

Answer 5

It is a Central bank, designed to be politically independent. It has 12 regional banks in major cities throughout the nation.

Question 6

How can the Federal Reserve influence economy?

Answer 6

Through money supply operations and setting certain interest rates, it influences interest rates set by banks and other financial institutions world-wide, affecting the cost and availability of credit. Federal Reserve System can influence economic activity and moderate problems, such as the level of employment, inflation or recession.

Question 7

To moderate the supply and cost of money, the ______ uses tools, such as buying and selling government bonds; altering the amount of _____ that other banks must keep on deposit with the _____; and changing the interest rate at which it loans funds to other institutions.

Answer 7

The Federal Reserve, reserves, Federal Reserve Bank.

Question 8

The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States….
To borrow Money on the credit of the United States … To coin Money, regulate the Value thereof…

Answer 8

Article I, Section 8

Question 9

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

Answer 9

Article I, Section 9

Question 10

No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money…

Answer 10

Article I, Section 10

Question 11

It provides legal authority to spend, as well as a legal constraint on government spending. If a budget has not been passed by the start of a new fiscal year, the government does not have legal authority to operate.

Answer 11

Appropriation Budget

Question 12

As an emergency stopgap measure may be enacted; it allows government to continue operations for a limited period until the budget appropriation is passed.

Answer 12

A Continuing Resolution (CR)

Question 13

Legal restrictions to government borrowing (From Constitutions and Charters)

Answer 13

• Purpose**: Borrowing is often restricted to capital investments, as contrasted to government operations. Borrowing to support operations *may be permitted in unique circumstances—most often, for cash flow purposes.
• *Term**: Government debts must be repaid in a specified period.
• *Amount:** Total amount of debt is restricted in various ways. The national government has a debt limit based on the absolute value of the debt. States often limit the amount that can be used to service debt to a percentage of the total state budget. Local debt limits may be tied to assessed value of real estate.
• *Process:** In many instances, government borrowing is allowed only by referendum. For instance, after the legislature or county commissioners approve the borrowing plan, it must be put before the voters for approval before borrowing can take place.

Question 14

The ultimate political constraint is

Answer 14

The ballot box.

Question 15

Legal constraints of government Sovereignty,

Answer 15

The checks and balances derived from separation of powers, and constraints inherent in the slow, deliberate legislation process.

Question 16

When the appropriated budget is depleted before the end of the period, usually a fiscal year, or when unexpected expenses arise. The chief executive informs the legislative branch that more funds are needed. If the legislature provides additional funds, it is called

Answer 16

A supplemental appropriation or budget amendment.

Question 17

Debt Versus Deficit

Answer 17

“Debt” should not be confused with “deficit.”

Debt is planned, short-or long-term borrowing to finance government objectives. The national government incurs debt to finance both current operations and capital investments. In states and localities, debt is usually restricted to capital investments (not current operations).

A deficit occurs when government expenditures for a specific fiscal period exceed revenues. Deficits often lead to borrowing and thus to debt, especially at the national level. Most state and local governments are prohibited from deficit spending.

Question 18

They may strike out individual items without having to veto the entire bill.

Answer 18

Line item veto (State Government only)

The process is similar in local governments. Typically, a city council or board of supervisors submits a proposed budget to the mayor or supervisor; the chief executive can veto the budget (some have line-item veto authority), and the council/board may override the veto.

Question 19

The legislature may:

 prescribe organization structure and staffing procedures as part of the budget bill;  require various budget execution and spending reports; and

 conduct reviews and hold hearings to evaluate the programs or when issues arise.

Answer 19

The legislative branch oversight.

Question 20

 Citizens submit their needs and concerns to elected officials.

 Constitutions and statutes may require that certain spending and borrowing plans be submitted to voters via referendum or initiative.

 Citizens exercise their oversight at the polls.

Answer 20

Popular sovereignty (Citizen oversight)