Chapter 4 Flashcards
Budget Analysis and Deficit Financing
Debt
The amount that a government owes to those who have loaned it money.
Deficit
The amount by which a government’s spending exceeds its revenues in a given year.
Entitlement Spending
Mandatory funds for programs for which funding levels are automatically set by the number of eligible recipients, not the discretion of Congress.
Discretionary Spending
Optional spending set by appropriation levels each year, at Congress’s discretion.
Balanced Budget Requirement (BBR)
A law forcing a given government to balance its budge each year (spending = revenues).
Ex Post BBR
A law forcing a given government to balance its budget by the end of each fiscal year.
Ex Ante BBR
A law forcing either the governor to submit a balanced budget or the legislature to pass a balanced budget at the start of each fiscal year, or both.
Real Prices
Prices stated in some constant year’s dollars.
Nominal Prices
Prices stated in today’s dollars.
Consumer Price Index (CPI)
An index that captures the change over time in the cost of purchasing a “typical” bundle of goods.
Automatic Stabilizers
Automatic reductions in revenues and increases in outlays when the economy shrinks relative to its potential.
Cyclically Adjusted Budget Deficit
A measure of the government’s fiscal position if the economy were operating at full potential GDP.
Cash Accounting
A method of measuring the government’s fiscal position as the difference between current spending and current revenues.
Capital Accounting
A method of measuring the government’s fiscal position that accounts for changes in the value of the government’s net asset holdings.
Static Scoring
A method used by budget modelers that assumes that government policy changes only the distribution of total resources, not the amount of total resources.
Dynamic Scoring
A method used by budget modelers that attempts to model the effect of government policy on both the distribution of total resources and the amount of total resources.
Implicit Obligation
Financial obligations that the government has in the future that are not recognized in the annual budgetary process.
Present Discounted Value (PDV)
The value of each period’s dollar amount in today’s terms.
Intertemporal Budget Constraint
An equation relating the present discounted value of the government’s obligations to the present discounted value of its revenues.
Short-run Stabilization Issues
The role of the government in combating the peaks and troughs of the business cycle.
Automatic Stabilization
Policies that automatically alter taxes or spending in response to economic fluctuations in order to offset changes in household consumption levels.
Discretionary Stabilization
Policy actions taken by the government in response to particular instances of an underperforming or overperforming economy.
Interest Rate
The rate of return in the second period of investments made in the first period.
Intergenerational Equity
The treatment of future generations relative to current generations.
