Question

A key difference between functional finance and sound finance is that in the sound finance approach the government should:

A) take on a more active role in managing the economy.
B) take on a more active role in managing the economy, but only in wartime.
C) take on a less active role in managing the economy because of extensive crowding out.
D) take on a less active role in managing the economy since the budget should be balanced except in wartime.

Answer 1

The key difference between functional finance and sound finance is that the sound finance approach suggests a less active role for the government in managing the economy, except in wartime.

Step-by-step explanation:

The key difference between functional finance and sound finance is that in the sound finance approach, the government should take on a less active role in managing the economy since the budget should be balanced except in wartime.

Functional finance, on the other hand, believes that the government should take on a more active role in managing the economy. This means that the government should adjust interest rates and use fiscal policies like government spending and taxation to stabilize the economy.

In the sound finance approach, the focus is on fiscal responsibility and minimizing the government's involvement in the economy, while functional finance emphasizes the government's responsibility to actively manage the economy.