Chap 11 + 12 Flashcards
Income transfers?
payments to individuals when no current goods or services are exchanged
what are examples of income transfers?
social security? welfare, unemployment benefits
fiscal policy?
use of government taxes and spending to alter macroeconomic outcomes
fiscal stimulus?
tax cuts or spending hikes intended to increase (shift) aggregate demand)
AD shortfall?
amount of additional aggregate demand required to reach full-employment after allowing for price-level changes
fiscal restraint?
tax hikes or spending cuts to reduce (shift) aggregate demand
AD excess?
amount by which aggregate demand must be reduced to reach full-employment equilibrium after allowing for price-level changes
crowding out?
reduction in private sector borrowing and spending because of increased government spending
deficit spending?
situation which the government borrows funds to pay for spending that exceeds money brought in from taxes
budget surplus?
when the money brought in by the government is greater than the amount it spent
fiscal year?
12 month period used for accounting purposes
when does the fiscal year begin for federal government?
October 1
discretionary fiscal spending?
elements of the federal budget not determined by past legislative or executive commitments
fiscal restraint?
tax hikes or spending cuts intended to decrease (shift) aggregate demand
fiscal stimulus?
tax cuts or spending increases intended to increase (shift) aggregate demand
automatic stabilizer?
federal spending or revenue item that automatically responds counter cyclically to changes in national income
what are examples of automatic stabilizers?
unemployment benefits and income taxes
cyclical deficit?
portion of the budget balance attributable to short run changes in economic conditions
structura deficit?
federal revenues at full-employment under prevailing fiscal policy
crowding out?
reduction in private sector borrowing (and spending) caused by increased government spending
crowding in?
increase in private sector boring (and spending) caused by decrease government borrowing
national debt?
accumulated debt of the federal government
treasury bonds?
promissory notes (IOU’s) by the U.S, treasury
what is the principle of treasury bonds?
people buy bonds - lend money to the U.S. treasury - because bonds pay interest and are a very safe haven for idle funds
liability?
any obligation to make future payment?
asset?
anything having change value in the marketplace
internal debt?
U.S. government debt (treasury bonds) held by U.S. households and institutions
external debt?
U.S. government debt (treasury bonds) held by foreign households and institutions
refinancing?
finance (something) again, typically with a new loan at a lower rate of interest.
debt service?
interest required to be paid each year on debt
optimal mix out output?
most desirable combination of output attainable with existing resources, technology, and social values
deficit ceiling?
explicit limitations on the size of the annual budget deficit
debt ceiling?
explicit legislated limit on the amount of outstanding national debt
why are the debt ceilings?
they fore congress to about specific fiscal policies that stop accumulation of debt or force federal government to start reducing the accumulated debt
how does the government alter aggregate demand in fiscal policy? (3 things)
- purchasing more or fewer goods and services
- raising or lowering taxes
- changing the level of income transfers
what did keynes in the keynesian perspective emphasize about the economy and the curves and all that?
- aggregate demand curve shifts with change in spending behavior
- new injections of spending into circular flow multiply into much larger changes in total spending via the multiplier process
how do you get out of a recession in the keynesian perspective?
get someone to spend more on goods and services which will get economy out of recession
When there is a weak economy (unemployment), how does the government use fiscal stimulus to improve economy? what do these moves do? How does the AD curve move?
Policy tools:
1. increase government purchases (increase investment to stimulate jobs etc…)
2. cut taxes (increase money in economy)
3. increase transfers (give people more money to spend)
AD curve:
- try to shift it right
When there is a too strong economy (inflation), how does the government use fiscal stimulus to improve economy? How does the AD curve move?
Policy tools:
1. reduce government purchases (to not stimulate growth)
2. increase taxes (too take money out of economy or circular flow)
3. reduce transfer payments (give people less money to spend)
AD curve:
- try to shift it left
what was keynesian view all about?
full employment equilibrium, didn’t mate rid everything was in budget as long as we hit that mark above
what are 4 potential uses for a budget surplus?
- spend it on goods and services
- cut taxes
- increase income transfers
- pay off old debt (“save it”)
what causes budget deficits?
discretionary fiscal policy and cyclical changes in economy
