What would you fund with a limited budget?
Calculate a budget balance and explain who bears the tradeoffs when taxes or spending change.
A fictional town has $200 million of taxable income per year. A uniform tax raises revenue from that fixed base. Roads cost $15 million; you choose school and health spending. All figures below are annual millions of dollars. This is a budget exercise, not a real tax system.
Print creates the fixed example worksheet below. “Print with teacher answers” adds a separate answer page. Use your browser’s Save as PDF option to download it.
Change one assumption.
Predict what will happen, adjust an input, then use the results to check your reasoning. Sliders work with arrow keys.
What the numbers mean
The town has a $5 million deficit. Spending exceeds revenue; funding the gap requires borrowing, reserves, or another adjustment. The figure is a one-year flow, not total debt.
Show calculation table
| Budget line | Annual $ millions |
|---|---|
| Tax revenue | 50 |
| Schools | 20 |
| Health | 20 |
| Roads | 15 |
| Revenue minus spending | -5 |
Use the terms precisely.
Open a term to read its meaning, then use it in your explanation.
Tax base and tax rate
The base is the amount subject to tax. Revenue here equals $200 million multiplied by the tax rate.
Deficit versus debt
A deficit is spending above revenue during a period. Debt is an outstanding stock of borrowing built up over time.
Surplus
Revenue exceeds spending during the period. A balanced budget has equal revenue and spending.
Opportunity cost
Resources used for one purpose cannot simultaneously fund another purpose. Budget balance alone does not establish the best allocation.
- Tax base and tax rate
- The base is the amount subject to tax. Revenue here equals $200 million multiplied by the tax rate.
- Deficit versus debt
- A deficit is spending above revenue during a period. Debt is an outstanding stock of borrowing built up over time.
- Surplus
- Revenue exceeds spending during the period. A balanced budget has equal revenue and spending.
- Opportunity cost
- Resources used for one purpose cannot simultaneously fund another purpose. Budget balance alone does not establish the best allocation.
Work through the starting example.
These questions use the default settings, even if you changed the interactive lab. Show your calculations and explain one assumption behind your answer.
Starting inputs: Uniform tax rate: 25%; School spending: $20m; Health spending: $20m.
Name: __________________________ Date: ______________
- At the defaults, calculate revenue, total spending, and the budget balance.
- Keep the tax rate at 25% and roads at $15 million. Find two different ways to balance the budget. Identify a group affected by each.
- Set schools and health to $25 million each and taxes to 30%. What is the remaining gap? Does this number tell you the town’s total debt?
Try a new case
Choose your own balanced allocation and defend it. What information about needs and service effectiveness would you need before making a real decision?
Exit ticket
What changed, what stayed fixed, and which term helps explain the result?
A 35 minute teaching plan
Use 5 minutes to introduce the question and vocabulary, 10 to predict and test inputs in pairs, 12 for the worksheet, 5 to compare explanations, and 3 for the exit ticket. Without devices, use the printed starting case and calculate changes by hand.
Look for a correct calculation, precise terminology, and an explanation that respects the model’s limits. For the open challenge, accept different cases when the arithmetic and reasoning support them.
Open teacher answer key
- Revenue = 200 × 0.25 = $50 million. Spending = 20 + 20 + 15 = $55 million. The annual deficit is $5 million.
- Schools and health must total $35 million. Examples: 15 and 20, or 20 and 15. Students or health-service users may lose services; the model does not quantify those effects. Many allocations are possible.
- Spending is $65 million and revenue is $60 million, leaving a $5 million annual deficit. Total debt also depends on previous borrowing, repayments, and other financing; it cannot be inferred from this one year.
Teacher answer key: Taxes & government spending
- Revenue = 200 × 0.25 = $50 million. Spending = 20 + 20 + 15 = $55 million. The annual deficit is $5 million.
- Schools and health must total $35 million. Examples: 15 and 20, or 20 and 15. Students or health-service users may lose services; the model does not quantify those effects. Many allocations are possible.
- Spending is $65 million and revenue is $60 million, leaving a $5 million annual deficit. Total debt also depends on previous borrowing, repayments, and other financing; it cannot be inferred from this one year.
For the challenge and exit ticket, credit correct calculations, a clearly stated assumption, and precise use of a relevant term. Different supported examples are acceptable.
Where the model stops
The tax base is fixed. There are no transfers, interest costs, tax brackets, behavioral responses, or measured service outcomes. A deficit is not automatically bad and a surplus is not automatically good.
Further reading: OpenStax: government spending. These fictional activities are original to World Economy. Reference links do not imply endorsement.
World Economy · losttofound.org/classroom/labs/public-budget. An adult educator may print or privately share this free activity with their own learners. Keep the source attached. No resale or public rehosting.