As we've seen, the North Carolina state budget is in profound deficit. The causes of this are not a mystery: the state's anticipated revenues have fallen well short of its anticipated expenditures over the coming year.

In general, there are two basic techniques for balancing a budget: "balancing up" or "balancing down". Balancing up will occur when revenues expand to meet anticipated expenditures, while balancing down will occur if expenditures are reduced to match anticipated revenues.

These sound quite different, but both tend to increase unemployment in the state.

• Balancing down through reduced expenditures will tend to reduce demand for goods and services and reduce employment. This can occur directly (through letting state employees go) or indirectly (through lowering purchases from private vendors so that they let their employees go).
• Balancing up through increased revenues will also tend to reduce employment. Increased revenues usually requires a rise in tax rates, and this rise in tax rates reduces the disposable income of citizens. Citizens then reduce demand for goods and services and thus reduce employment by those vendors providing the goods and services.

• An explanation of the "multiplier effect".
• The role of a local currency in the multiplier effect: the Plenty.
• The articles linked to "The North Carolina Budget Crisis".
• Case study -- Medicaid and the Uninsured: Kaiser Family Foundation

1. Does Frank understand the "multiplier effect"? How does the typical explanation of "leakages" have to be amended to handle Frank's case?
2. If the state government balances down through "cutting fraud and waste", will that still lead to reduced employment?
3. Which type of expenditure is more likely to support a North Carolina job: state government or private citizen?

Suppose that the state government lowers its expenditures by reducing its subsidy of local education, leading to 50 fewer teachers hired at the K-12 schools. What effect will that have on unemployment?

Suppose that the state government raises its tax revenues by increasing the state sales tax by 2 percentage points. What effect will that have on unemployment?

Can we raise employment in North Carolina by introducing a state currency?