1. We say that a variable is cyclical if it increases with economic booms and declines with economic recessions. We say that a variable is countercyclical if the opposite is true. Which elements of the U.S.

federal budget are cyclical and which are countercyclical?

(To get a sense of the main elements of the budget, visit http://www.whitehouse.gov/

omb/budget/fy2009/pdf/hist.pdf for expenditures.)

For fun, you can also check out Nathan Newman and Anders Schneiderman’s National Budget Simulator at http://www.nathannewman.

org/nbs/shortbudget06.html where you can experiment with what might happen to the federal budget under various taxation and spending scenarios.