Chapter 4 Content Flashcards
What is the total amount a government owes to lenders called?
Debt
What does the term ‘deficit’ refer to in government budgeting?
The amount by which government spending exceeds revenues in a given year
In which decade did the U.S. experience a budget surplus before returning to deficit spending?
Late 1990s
What major events contributed to the surge in the U.S. deficit in the 2000s?
Great Recession and COVID-19 pandemic
What type of spending is based on eligibility and is considered automatic?
Entitlement Spending
What is discretionary spending?
Spending determined annually by Congress
What are real prices adjusted for?
Inflation
What do nominal prices represent?
Prices expressed in today’s dollars, not adjusted for inflation
How does inflation affect the real value of debt?
It erodes the real value, effectively reducing its burden over time
What are automatic stabilizers?
Programs like unemployment benefits that adjust automatically based on economic conditions
What does the cyclically adjusted budget deficit measure?
What the deficit would be if the economy were at full employment
What does cash accounting record?
Government expenses and revenues as they occur
What is capital accounting concerned with?
Government assets such as buildings and infrastructure
What is the main issue with defining government assets?
It’s hard to define what counts as an asset
What does static scoring assume about policy changes?
That they do not affect overall economic output
What is dynamic scoring?
Assumes policy changes can impact economic growth
What are implicit obligations in government budgeting?
Future financial commitments not in the annual budget
What does present discounted value represent?
The value of future government obligations in today’s dollars
Why do actual deficits often differ from projections?
Due to economic uncertainty
How do higher deficits today affect future generations?
They lead to higher taxes in the future
What is the relationship between savings and economic growth?
More savings → more capital → higher economic growth
How can deficits crowd out private investment?
By increasing interest rates
What happens when the government borrows heavily?
It competes with private borrowers, leading to higher interest rates
What is a long-standing issue in U.S. politics regarding budgeting?
Budget deficits
What is the long-term challenge beyond the current deficit?
Implicit debt obligations like Social Security and Medicare
How can deficits reduce economic growth?
By increasing borrowing costs and discouraging private investment
What must policy decisions balance according to the conclusion?
Short-term economic support with long-term fiscal responsibility
