money neurtality quiz Flashcards
deficit
revenue<expenditures
surplus
revenue>expenditures
last one in 2000
examples of revenue (receipts)
income tax = 47%
payroll tax = 33%
corporate income tax = 11%
others = 9%
where does federal spending go
major entitlements (more than 50%)
medicare, medicaid, healthcare, social security
public debt/national debt
total accumulation of all past yearly deficits and surpluses
who holds the national debt
agencies of government, foreigners, and individuals
most debt is held by
the public (foreigners)
budget balance
two different changes in fiscal policy (equal effects on budget balance but unequal on economy)
what impacts budget balance
deliberate changes in fiscal policy
current state of the business cycle
cyclically adjusted budget balance
an estimate of what the budget balance if there was neither a recession or inflation gap
servicing the debt
requires taxing the general public to pay interest to bondholders
long run implications of fiscal policy
deficits, surpluses, and debt
two reasons to be concerned when a government runs a deficit
crowding out
place financial pressure on future budgets
addition problems of fiscal policy
problems of timing
political motivated policies
crowding out effect
net exports effect
problems of timing
recognition lag
administrative lag
operational lag
political motivated policies
politicians may use economically inappropriate policies to get reelected
crowding out effect
government spending might cause unintended effects that weaken the impact of the policy
net exports effect
international trade reduces the effectiveness of fiscal policies
the money market
determines interest rates on the short run
the loanable funds
determines interest rates on long run
expansionary monetary policy on long run
won’t increase real GDP
causes more inflation
monetary neutrality
changes in the money supply have no real effects on the economy
(an increase in money supply wont change in long run)
three graphs needed
money market
investment demand
AD/AS
in short run
nominal interest rate falls = real interest rate falls
inflation
price level is the absolute level of a price index
price level measures
consumer Price index
producer price index
GDP deflator
rate of inflation
the annual rate of increase in the price level
disinflation
a reduction in the rate of inflation
deflation
a decline in overall prices throughout the economy
opposite of inflation
who is harmed in unanticipated inflation
creditors
because both the principal on loans and interest payments are usually fixed
who benefits from unanticipated inflation
debtors
the real value of their payments decline as their wages rise with inflation
inflation tax
independent central banks issue fiat money
monetizing the debt
seignorage
central banks print money to pay government debts, cause prices to rise and decrease purchasing power
seignorage
economics refer to the revenue generated by the government’s right to print money
demand pull inflation
increases prices
demand increases but supply stays the same
shortage
overheated economy with excessive spending but same amount of goods
cost push inflation
higher production costs increase prices
negative supply shock
output gap in inflationary gap
positive
output gap in recessionary gap
negative
