Chap 11 + 12

Question 1

Income transfers?

Answer 1

payments to individuals when no current goods or services are exchanged

Question 2

what are examples of income transfers?

Answer 2

social security? welfare, unemployment benefits

Question 3

fiscal policy?

Answer 3

use of government taxes and spending to alter macroeconomic outcomes

Question 4

fiscal stimulus?

Answer 4

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

Question 5

AD shortfall?

Answer 5

amount of additional aggregate demand required to reach full-employment after allowing for price-level changes

Question 6

fiscal restraint?

Answer 6

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

Question 7

AD excess?

Answer 7

amount by which aggregate demand must be reduced to reach full-employment equilibrium after allowing for price-level changes

Question 8

crowding out?

Answer 8

reduction in private sector borrowing and spending because of increased government spending

Question 9

deficit spending?

Answer 9

situation which the government borrows funds to pay for spending that exceeds money brought in from taxes

Question 10

budget surplus?

Answer 10

when the money brought in by the government is greater than the amount it spent

Question 11

fiscal year?

Answer 11

12 month period used for accounting purposes

Question 12

when does the fiscal year begin for federal government?

Answer 12

October 1

Question 13

discretionary fiscal spending?

Answer 13

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

Question 14

fiscal restraint?

Answer 14

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

Question 15

fiscal stimulus?

Answer 15

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

Question 16

automatic stabilizer?

Answer 16

federal spending or revenue item that automatically responds counter cyclically to changes in national income

Question 17

what are examples of automatic stabilizers?

Answer 17

unemployment benefits and income taxes

Question 18

cyclical deficit?

Answer 18

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

Question 19

structura deficit?

Answer 19

federal revenues at full-employment under prevailing fiscal policy

Question 20

crowding out?

Answer 20

reduction in private sector borrowing (and spending) caused by increased government spending

Question 21

crowding in?

Answer 21

increase in private sector boring (and spending) caused by decrease government borrowing

Question 22

national debt?

Answer 22

accumulated debt of the federal government

Question 23

treasury bonds?

Answer 23

promissory notes (IOU’s) by the U.S, treasury

Question 24

what is the principle of treasury bonds?

Answer 24

people buy bonds - lend money to the U.S. treasury - because bonds pay interest and are a very safe haven for idle funds

Question 25

liability?

Answer 25

any obligation to make future payment?

Question 26

asset?

Answer 26

anything having change value in the marketplace

Question 27

internal debt?

Answer 27

U.S. government debt (treasury bonds) held by U.S. households and institutions

Question 28

external debt?

Answer 28

U.S. government debt (treasury bonds) held by foreign households and institutions

Question 29

refinancing?

Answer 29

finance (something) again, typically with a new loan at a lower rate of interest.

Question 30

debt service?

Answer 30

interest required to be paid each year on debt

Question 31

optimal mix out output?

Answer 31

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

Question 32

deficit ceiling?

Answer 32

explicit limitations on the size of the annual budget deficit

Question 33

debt ceiling?

Answer 33

explicit legislated limit on the amount of outstanding national debt

Question 34

why are the debt ceilings?

Answer 34

they fore congress to about specific fiscal policies that stop accumulation of debt or force federal government to start reducing the accumulated debt

Question 35

how does the government alter aggregate demand in fiscal policy? (3 things)

Answer 35

1. purchasing more or fewer goods and services
2. raising or lowering taxes
3. changing the level of income transfers

Question 36

what did keynes in the keynesian perspective emphasize about the economy and the curves and all that?

Answer 36

• 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

Question 37

how do you get out of a recession in the keynesian perspective?

Answer 37

get someone to spend more on goods and services which will get economy out of recession

Question 38

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?

Answer 38

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

Question 39

When there is a too strong economy (inflation), how does the government use fiscal stimulus to improve economy? How does the AD curve move?

Answer 39

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

Question 40

what was keynesian view all about?

Answer 40

full employment equilibrium, didn’t mate rid everything was in budget as long as we hit that mark above

Question 41

what are 4 potential uses for a budget surplus?

Answer 41

1. spend it on goods and services
2. cut taxes
3. increase income transfers
4. pay off old debt (“save it”)

Question 42

what causes budget deficits?

Answer 42

discretionary fiscal policy and cyclical changes in economy