Ch 12 - Deficits and Debt

Question 1

fiscal policy

Answer 1

the use of government taxes and spending to alter macroeconomic outcomes

Question 2

deficit spending

Answer 2

the use of borrowed funds to finance government expenditures that exceed tax revenues

Question 3

budget deficit

Answer 3

amount by which government spending exceeds government revenue in a given time period

Question 4

budget surplus

Answer 4

an excess of government revenues over government expenditures in a given time period

Question 5

fiscal year (FY)

Answer 5

the 12-month period used for accounting purposes; begins October 1 for the federal government

Question 6

discretionary fiscal spending

Answer 6

those elements of the federal budget not determined by past legislative or executive commitments

Question 7

fiscal restraint

Answer 7

tax hikes or spending cuts intended to reduce (shift) aggregate demand

Question 8

fiscal stimulus

Answer 8

tax cuts or spending hikes intended to increase (shift) aggregate demand

Question 9

income transfers

Answer 9

payments to individuals for which no current goods or services are exchanged, such as Social Security, welfare, unemployment benefits

Question 10

automatic stabilizer

Answer 10

federal expenditure or revenue item that automatically responds counter-cyclically to changes in national income, like unemployment benefits, income taxes

Question 11

cyclical deficit

Answer 11

that portion of the budget balance attributable to short-run changes in economic conditions

Question 12

structural deficit

Answer 12

federal revenues at full-employment minus expenditures at full-employment under prevailing fiscal policy

Question 13

crowding out

Answer 13

a reduction in private-sector borrowing (and spending) caused by increase government borrowing

Question 14

opportunity cost

Answer 14

the most desired goods or services that are forgone in order to obtain something else

Question 15

crowding in

Answer 15

an increase in private-sector borrowing (and spending) caused by decreased government borrowing

Question 16

national debt

Answer 16

accumulated debt of the federal government

Question 17

Treasury bonds

Answer 17

promissory notes (IOUs) issued by the US Treasury

Question 18

liability

Answer 18

an obligation to make future payment; debt

Question 19

asset

Answer 19

anything having exchange value in the marketplace; wealth

Question 20

internal debt

Answer 20

US government debt (Treasury bonds) held by US households and institutions

Question 21

external debt

Answer 21

US government debt (Treasury bonds) held by foreign households and institutions

Question 22

refinancing

Answer 22

the issuance of new debt in payment of debt issued earlier

Question 23

debt service

Answer 23

the interest required to be paid each year on outstanding debt

Question 24

optimal mix of output

Answer 24

the most desirable combination of output attainable with existing resources, technology, and social values

Question 25

deficit ceiling

Answer 25

an explicit, legislated limitation on the size of the budget deficit

Question 26

debt ceiling

Answer 26

an explicit, legislated limit on the amount of outstanding national debt