Chapter 24 - The Government and Fiscal Policy Flashcards
fiscal policy
The government’s spending and taxing policies.
monetary policy
The behavior of the Federal Reserve concerning the nation’s money supply.
discretionary fiscal policy
Changes in taxes or spending that are the result of deliberate changes in government policy.
net taxes (T)
Taxes paid by firms and households to the government minus transfer payments made to households by the government.
disposable, or after-tax, income (Y-sub(d))
Total income minus net taxes: Y - T.
budget deficit
The difference between what a government spends and what it collects in taxes in a given period: G - T.
government spending multiplier
The ratio of the change in the equilibrium level of output to a change in government spending.
tax multiplier
The ratio of change in the equilibrium level of output to a change in taxes.
balanced-budget multiplier
The ratio of change in the equilibrium level of output to a change in government spending where the change in government spending is balanced by a change in taxes so as not to create any deficit. The balanced-budget multiplier is equal to 1: The change in Y resulting from
the change in G and the equal change in T are exactly the same size as the initial change in G or T.
federal budget
The budget of the federal government.
federal surplus (+) or deficit (-)
Federal government receipts minus expenditures.
federal debt
The total amount owed by the federal government.
privately held federal debt
The privately held (non-government-owned) debt of the U.S. government.
automatic stabilizers
Revenue and expenditure items in the federal budget that automatically change with the state of the economy in such a way as to stabilize GDP.
automatic destabilizer
Revenue and expenditure items in the federal budget that automatically change with the state of the economy in such a way as to destabilize GDP.
fiscal drag
The negative effect on the economy that occurs when average tax rates increase because taxpayers have moved into higher income brackets during an expansion.
full-employment budget
What the federal budget would be if the economy were producing at the full-employment level
of output.
structural deficit
The deficit that remains at full employment.
cyclical deficit
The deficit that occurs because of a downturn in the
business cycle.
Disposable income
Y-(sub d) (=–) Y - T
AE
AE (=–) C + I + G
Government budget deficit
Government budget deficit (=–) G - T
Equilibrium in an economy with a government
Equilibrium in an economy with a government: Y= C + I + G
Saving/investment approach to equilibrium in an economy with a government
Saving/investmentapproachto equilibrium in an economy with a government: S + T =I + G
Government spending multiplier
Government spending multiplier (=–) 1/MPS
Tax multiplier
Tax multiplier (=–) - (MPC / MPS)
Balanced-budget multiplier
Balanced-budget multiplier (=–) 1
