The President of the United States has been elected on the promise of fiscal responsibility. By law he cannot reduce the net interest paid on the debt. The President's budget is projected to leave the country with a $200 billion deficit.

The United States is subject to global security concerns. At the same time, a lingering recession and financial markets rescue package reduces the government's tax revenues and forces the government to increase its spending on unemployment benefits, welfare, housing assistance, food stamps, and other need-based programs. Because of the increased spending and reduced revenues, the nation falls into a projected deficit of nearly XXX in 2011 (This is the first piece of the information you need to find).

The President is committed to keeping his campaign promises in order to avoid future crisis over the US's financial standing. He must raise taxes, cut spending, or a combination of both to stay within his new guideline of a deficit below $200 billion. The President turns to you, his trusted economic advisor, for help. (Note: While some events in this scenario reflect actual events, others are hypothetical for the purposes of this exercise. Budget figures in the simulation are actual White House figures of 2005, including spending and revenues of 2005.)

Given the information you watch and read in Activities 7.1-4, use that background to answer the following questions for discussion. Since the simulation is using 2005 numbers, start off with actual numbers just to inject a sense of reality into this discussion. Research this information from a reliable source and begin your analysis with what you found. Detail your choices for cuts and spending, paying close attention to what you read in the Bowles and Montgomery articles. Finally, analyze the effect your choices will have on the economy.