In the most stringent cases, states are required to pass balanced budgets, and no borrowing is allowed to finance the operating budget. The states can use rainy day funds built up from previous years’ surpluses to finance current operations. The states keep capital budgets separate, and states are permitted to finance capital expenditures with borrowing.
Given that the policy to expand the monetary base has produced various economic stimulus effects through the aforementioned several mechanisms, adjusting or shifting from this policy, or providing policy guidance about such a move, should produce the opposite, tightening effects.