Objective 2

Question 1

Built-in stabilizers

Answer 1

Anything that increases the government’s budget deficit (or reduces its budget surplus) during a recession and increases its budget surplus (or reduces its budget deficit) during expansion without requiring explicit action by policymakers.

Question 2

Government budget deficit

Answer 2

The amount by which revenues of the federal government fall short of its expenditures in any year.

Question 3

Government budget surplus

Answer 3

The amount by which revenues of the federal government exceed its expenditures in any year.

Question 4

Government debt

Answer 4

The total amount of money owed by the federal government to the owners of government securities; equal to the sum of past government budget deficits less government budget surpluses.

Question 5

Crowding-out effect

Answer 5

A decrease in private investment caused by higher interest rates that result from the federal government’s increased borrowing to finance deficits (or debt).

Question 6

Recognition lag

Answer 6

The lag time it takes to identify and document the existence of an economic problem that might require policy action.

Question 7

Administrative lag

Answer 7

The lag time it takes for policy makers to decide which action to take to address an economic problem.

Question 8

Operational lag

Answer 8

The lag time it takes for implemented policy actions to have an effect.