chapter 31 Flashcards
the government budget constraint
Government Expenditure
= Tax Revenue + Borrowing
what are government expenditures composed of?
- purchases of goods and services = G
- debt-service payments = i x D
- transfers
What is the detailed formula for the government’s budget constraint?
G + i x D = T +Borrowing
(G + i x D) – T = Borrowing
gov’s annual budget deficit
- the government’s borrowing
* also the change in the stock of debt
budget deficit formula
Budget Deficit =change in D = (G + i x D) – T
if there’s a budget deficit –> the debt _____
rises
if there’s a budget surplus –> the debt _____
falls
primary budget deficit (non-interest part of the budget) formula
Primary Budget
Deficit = Total Budget Deficit – Debt-service Payments
= (G + i x D – T) – i x D
= G – T
**Shows the extent to which current tax revenues can cover the government’s current program spending
fiscal policy
use of the government’s tax and spending policies in an effort to influence the level of GDP
for a given set of tax and spending policies, the budget deficit is ________ related to real GDP
negatively
the budget deficit function shows this negative relationship between the deficit and Y
budget deficit function is ________
a relationship that plots, for a given fiscal policy, the government’s budget deficit as a function of the level of real GDP
________ determines the position of the budget deficit function
fiscal policy
_________ lead to movements along a given budget deficit function
changes in real GDP
when real GDP equals Y*, there is no ______ component to the budget deficit
cyclical
what deficit exists when real GDP equals Y*
structural budget deficit
The structural budget deficit is sometimes called the cyclically
adjusted deficit