Exam Unit 5 Vocab

Question 1

AD excess

Answer 1

the amount by which aggregate demand must be reduced to achieve full-employment equilibrium after allowing for price-level changes.

Question 2

AD shortfall

Answer 2

the amount additional aggregate demand needed to achieve full employment after allowing for price level changes.

Question 3

aggregate demand

Answer 3

total quantity of output demanded at alternative price levels in a given time period, ceteris paribus

Question 4

aggregate supply

Answer 4

total quantity of output producers are willing and able to supply at alternative price levels in a given time period ceteris paribus

Question 5

crowding out

Answer 5

a reduction in private sector borrowing (and spending) caused by increased government borrowing.

Question 6

disposable income

Answer 6

after-tax income of consumers; personal income less personal taxes

Question 7

equilibrium (macro)

Answer 7

the combination of price level and real output that is compatible with both aggregate demand and supply.

Question 8

fiscal policy

Answer 8

the use of government taxes and spending to alter macroeconomic outcomes.

Question 9

fiscal restraint

Answer 9

tax hikes or spending cuts intended to reduce (shift) aggregate demand.

Question 10

fiscal stimulus

Answer 10

tax cuts or spending hikes intended to increase (shift) aggregate demand.

Question 11

income transfers

Answer 11

payments to individuals for which no current goods or services are exchanged, such as Social Security, welfare, unemployment benefits.

Question 12

inflationary GDP gap

Answer 12

the amount by which equilibrium GDP exceeds full employment GDP

Question 13

marginal propensity to consume

Answer 13

the fraction of each additional (marginal) dollar of disposable income spent on consumption; the change in consumption divided by the change in disposable income.

Question 14

multiplier

Answer 14

the multiple by which an initial change in aggregate spending will alter total expenditure after an infinite number of spending cycles;
1 / (1-MPC)

Question 15

recessionary GDP gap

Answer 15

the amount by which equilibrium GDP falls short of full employment GDP

Question 16

asset

Answer 16

anything having exchange value in the marketplace; wealth

Question 17

automatic stabilizer

Answer 17

federal expenditure or revenue item that automatically responds countercyclically to changes in national income, like unemployment benefits, income taxes.

Question 18

budget deficit

Answer 18

amount by which government spending exceeds government revenue in a given time period.

Question 19

crowding in

Answer 19

an increase in private sector borrowing (and spending) caused by decreased government borrowing.

Question 20

cyclical deficit

Answer 20

that portion of the budget balance attributable to short run changes in economic conditions.

Question 21

debt ceiling

Answer 21

an explicit, legislated limit on the amount of outstanding national debt.

Question 22

debt service

Answer 22

the interest required to be paid each year on outstanding debt.

Question 23

deficit ceiling

Answer 23

an explicit, legislated limitation on the size of the budget deficit.

Question 24

discretionary fiscal spending

Answer 24

those elements of the federal budget not determined by past legislative or executive commitments.

Question 25

external debt

Answer 25

U.S. government debt (treasury bonds) held by foreign households and institutions.

Question 26

fiscal year

Answer 26

The 12 month period used for accounting purposes; begins Oct. 1 for the federal government.

Question 27

income transfers

Answer 27

Payments to individuals for which no current goods or services are exchanged, such as Social Security, welfare, unemployment benefits.

Question 28

internal debt

Answer 28

U.S. government debt (treasury bonds) held by U.S. households and institutions

Question 29

liability

Answer 29

an obligation to make future payment; debt.

Question 30

optimal mix of output

Answer 30

the most desirable combination of output attainable with existing resources, technology, and social values.

Question 31

refinancing

Answer 31

the issuance of new debt in payment of debt issued earlier.

Question 32

structural deficit

Answer 32

federal revenues at full employment minus expenditures at full employment under prevailing fiscal policy.

Question 33

treasury bonds

Answer 33

promissory notes (IOUs) issued by the U.S. treasury.