Budgets at all levels of government reflect a complex interplay of internal and external factors that determine the level of government spending and the allocation of resources among an array of public, private, and merit goods produced by governments. Speculate how each of the following external events affects (1) total spending by a city or county and (2) the relative allocation of resources among spending categories. (What categories will see an increase in funding, and what categories are likely to see a decrease?)

a. A drop in market interest rates for borrowing funds (1) Effect on total spending (2) Relative effect on spending for debt service and capital improvements

b. A sectoral shift from manufacturing to retail shopping centers (1) Effect on total spending (2) Relative effect on spending for infrastructure and economic development initiatives (3) Bonus: What changes in the tax base and revenue structure will occur?

c. An increase of 5 percent in the consumer price index (1) Effect on total spending (2) Relative effect on salaries, wages, supplies, and equipment

d. A state mandate to provide a freeport exemption to all business inventory (i.e., to eliminate the property tax on all business inventory held as raw materials or finished goods) (1) Effect on total spending (2) Relative effect on public safety, parks and recreation, administration, and public works