Final answer:
The use of a five-year rolling-average budget by state governments would likely result in making balanced-budget requirements much less procyclical. This would provide stability by averaging out revenue and expenditures over multiple years and allow for automatic stabilizers to function more effectively, rather than exacerbating economic fluctuations with annually balanced budgets.
Option 'b' is the correct.
Step-by-step explanation:
If state governments began using a five-year rolling-average budgeting procedure, instead of the current practice which doesn't involve a rolling average, the likely result would be B. Balanced-budget requirements in state constitutions would be much less procyclical.
This method of budgeting would smooth out budgeting processes over a five-year period, rather than making reactive decisions based on the short-term fluctuations of the economy.
Traditionally, budgets that have to be balanced annually do not consider the cyclical nature of economies, often exacerbating economic volatility.
During recessions, an economy tends to contract, causing tax revenues to decrease and spending on safety-net programs to increase, naturally leading to larger deficits. Conversely, during economic booms, revenues increase, and less spending on such programs is needed, commonly resulting in surpluses.
A five-year rolling-average budget would take into account these fluctuations, allowing for more stable and predictable budgeting by averaging out several years of revenue and expenditures, and minimizing abrupt changes in fiscal policy.
Consequently, this method would support automatic stabilizers, unlike an annually balanced budget, which would stiffen these stabilizers, potentially worsening economic fluctuations.