Chapter 11 Flashcards
Lump-sum tax
A fixed tax that is independent of the level of income
Fiscal policy
The use of government spending and taxes to regulate economic activity
Budget deficit
The condition in which government spending is greater than tax revenues
Budget surplus
The condition in which government spending is less than tax revenues
Balanced budget
A condition in which government spending equals tax revenues
Functional finance
The intentional use of deficits and surpluses to achieve desired economic objectives
Balanced budget change in spending
The condition in which a change in government spending equals the change in taxes
Balanced budget theorem
The theory that states that if government spending and taxes increase by the same amount, the resulting increase in income will equal the increase in government spending
Automatic fiscal policy / Automatic (built-in) stabilizers
The fiscal policy measures that are built into the economy
Discretionary fiscal policy
Deliberate changes in government spending and taxes to achieve desired economic objectives
Progressive tax system
A system in which the tax rate increases as income increases
Fiscal drag
The phenomenon in which automatic stabilizers prevent the economy from recovering from a recession
Contractionary fiscal policy
Decreases in government spending and increases in taxes that result in a reduction in aggregate expenditure
Expansionary fiscal policy
Increases in government spending and increases in taxes that result in an increase in aggregate expenditure
Full-employment budget
The position of the budget in the economy if the economy were at full employment
