Lesson 55 - unit 11 Flashcards
What are 2 broad categories of Federal spending?
Mandatory spending and discretionary spending.
What is the multiplier effect?
Increased spending by the government increases aggregate demand as those who receive Federal dollars then use those dollars to buy other goods and services.
What is the meaning of Federal deficit?
It is the amount that the government spends each year which exceeds revenue received.
What is the meaning of national debt?
The accumulated annual deficits.
What is the crowding out effect?
When deficit spending drives up interest rates and reduces the supply of money available for loans to private entities.
What is needed to reduce or eliminate deficits and debt?
The courage to make spending cuts and/or tax increases.
What has become an accepted standard among politicians for how large the deficit should be?
A low ratio of the GDP.
What does James Buchanan say is the generally accepted linkage between borrowing money and the obligation to repay what is borrowed?
Responsibility of the borrower to pay the price of borrowing.
How does deficit spending by the government violate this linkage?
The people who are borrowing do not directly suffer the consequences.
What 2 circumstances have commonly been accepted as valid reasons for financing government spending by borrowing?
- When the funds were devoted to capital investment projects.
- When there are extraordinary demands on revenues (such as war).
