Chapter 4

Question 1

Debt

Answer 1

The amount a government owes to those who have loaned

it money.

Question 2

Deficit

Answer 2

The amount by which a government’s spending exceeds

its revenues in a given year.

Question 3

The budget process distinguishes between two types of federal spending. They are?

Answer 3

Entitlement Spending and Discretionary Spending

Question 4

Entitlement Spending

Answer 4

Mandatory funds for programs for which funding levels are automatically set by the number of eligible recipients, not the discretion of Congress.

Question 5

Discretionary spending

Answer 5

Optional spending set by appropriation levels each year, at Congress’s discretion.

Question 6

Budget Policies at the state level

Answer 6

1) balanced budget requirement (BBR)
2) ex post BBR
3) ex ante BBR

Question 7

balanced budget requirement (BBR)

Answer 7

A law forcing a given government to balance its budget each year (spending = revenue).

Question 8

ex post BBR

Answer 8

A law forcing a given government to balance its budget by the end of each fiscal year.

Question 9

ex ante BBR

Answer 9

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.

Question 10

real prices

Answer 10

Prices stated in some constant year’s dollars.

Question 11

nominal prices

Answer 11

Prices stated in today’s dollars.

Question 12

Consumer Price Index (CPI)

Answer 12

An index that captures the change over time in the cost of purchasing a “typical” bundle of goods.

Question 13

standardized (structural) budget deficit

Answer 13

A long-term measure of the government’s fiscal position, with short- term factors removed.

Question 14

cyclically adjusted budget deficit

Answer 14

A measure of the government’s fiscal position if the economy were operating at full potential GDP.

Question 15

cash accounting

Answer 15

A method of measuring the government’s fiscal position as the difference between current spending and current revenues.

Question 16

capital accounting

Answer 16

A method of measuring the government’s fiscal position that accounts for changes in the value of the government’s net asset holdings.

Question 17

What are some issues with capital budgeting?

Answer 17

ok

Question 18

static scoring

Answer 18

A method used by budget modelers that assumes that government policy changes only the distribution of total resources, not the amount of total resources.

Question 19

dynamic scoring

Answer 19

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.

Question 20

implicit obligation

Answer 20

Financial obligations the government has in the future that are not recognized in the annual budgetary process.

Question 21

present discounted value (PDV)

Answer 21

The value of each period’s dollar amount in today’s terms.

Question 22

the generational accounting method

Answer 22

budget measure was designed to assess the implications of the government’s current (or proposed) fiscal policies for different generations of taxpayers.

Question 23

What question does generational accounting answer

Answer 23

How much does each generation of taxpayers (those born in different years) benefit, on net, from the government’s spending and tax policies, assuming that the budget is eventually brought into long-run balance?

Question 24

short-run stabilization issues

Answer 24

The role of the government in combating the peaks and troughs of the business cycle.

Question 25

automatic stabilization

Answer 25

Policies that automatically alter taxes or spending in response to economic fluctuations in order to offset changes in household consumption levels.

Question 26

discretionary stabilization

Answer 26

Policy actions taken by the government in response to particular instances of an underperforming or overperforming economy.

Question 27

interest rate

Answer 27

The rate of return in the second period of investments made in the first period.

Question 28

intergenerational equity

Answer 28

The treatment of future generations relative to current generations.