CoreMicroEconomics_CH_11

Question 1

Annually balanced budget

Answer 1

Federal expenditures and taxes would have to be equal each year. Annually balanced budgets tend to be procyclical. Pg. 245

Question 2

Fiscal sustainability

Answer 2

A fiscal imbalance equal to zero. Pg 254

Question 3

Crowding-out effect

Answer 3

Arises from deficit spending requiring the government to borrow, thus driving up interest rates and reducing consumer spending and business investment. Pg. 251

Question 4

Functional finance

Answer 4

Essentially ignores the impact of the budget on the business cycle and focuses on fostering economic growth and stable prices, while keeping the economy as close as possible to full employment. Pg. 246

Question 5

Deficit

Answer 5

The amount by which annual government spending exceeds tax revenues. Pg 242

Question 6

Generational imbalance

Answer 6

An estimate of how much of any fiscal imbalance is being shifted to future generations. Pg 253

Question 7

Fiscal imbalance

Answer 7

The difference between the present value of future obligations and expected revenues, less government assets, assuming current policies remain unchanged. Pg. 253

Question 8

Budget and trade deficits

Answer 8

These are related by the following equation: G _ T = (S _ I) + (M _ X). So, budget deficits must be covered by net domestic saving (private plus corporate) or by net foreign saving (imports minus exports). Pg. 248

Question 9

Cyclically balanced budget

Answer 9

Balancing the budget over the course of the business cycle by restricting spending or raising taxes when the economy is booming and using these surpluses to offset the deficits that occur during recessions. Pg. 245

Question 10

Externally held debt

Answer 10

Public debt held by foreigners, roughly equal to half of the outstanding U.S. debt held by the public. Pg. 249

Question 11

Government budget constraint

Answer 11

The government budget is limited by the fact that G_ T = DM + DB + DA. Pg. 503

Question 12

Internally held debt

Answer 12

Public debt owned by U.S. banks, corporations, mutual funds, pension plans, and individuals. Pg. 249

Question 13

Public choice theory

Answer 13

The economic analysis of public and political decision making, looking at issues such as voting, the impact of election incentives on politicians, the influence of special interest groups, and rent_seeking behaviors. Pg. 243

Question 14

Public debt

Answer 14

The total accumulation of past deficits and surpluses; it includes Treasury bills, notes, and bonds, and U.S. savings bonds. Pg. 242

Question 15

Surplus

Answer 15

Occurs when the price is above market equilibrium, and quantity supplied exceeds quantity demanded. Pg. 242