Chapter 13

Front 1

Fiscal Policy

Back 1

Changes in government spending and tax collections designed to achieve full employment, price stability, and economic growth; also called discretionary fiscal policy

Front 2

Council of Economic Advisers (CEA)

Back 2

A group of three persons that advises and assists the president of the United States on economic matters (including the preparation of the annual Economic Report of the President)

Front 3

Expansionary Fiscal Policy

Back 3

An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

Front 4

Budget Deficit

Back 4

The amount by which expenditures exceed revenues in any year

Front 5

Contractionary Fiscal Policy

Back 5

A decrease in government purchases of goods and services, an increase in net taxes, or some combination of the two, for the purpose of decreasing aggregate demand and thus controlling inflation

Front 6

Budget Surplus

Back 6

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

Front 7

Built-In Stabilizer

Back 7

A mechanism that increases government's budget deficit (or reduces its surplus) during a recession and increases government's budget surplus (or reduces its deficit) during an expansion without any action by policymakers. The tax system is one such mechanism

Front 8

Progressive Tax System

Back 8

A tax for which the average tax rate (= tax revenue/GDP) rises with GDP

Front 9

Proportional Tax System

Back 9

A tax for which the average tax rate (= tax revenue/GDP) remains constant as GDP rises or falls

Front 10

Regressive Tax System

Back 10

A tax for which the average tax rate (= tax revenue/GDP) falls as GDP rises

Front 11

Cyclically Adjusted Budget

Back 11

The estimated annual budget deficit or surplus that would occur under existing tax rates and government spending levels if the economy were to operate at its full-employment level of GDP for a year; the full-employment budget deficit or surplus

Front 12

Cyclical Deficit

Back 12

A Federal budget deficit that is caused by a recession and the consequent decline in tax revenues

Front 13

Political Business Cycle

Back 13

Fluctuations in the economy caused by the alleged tendency of Congress to destabilize the economy by reducing taxes and increasing government expenditures before elections and to raise taxes and lower expenditures after elections

Front 14

Crowding-Out Effect

Back 14

A rise in interest rates and a resulting decrease in planned investment caused by the federal government's increased borrowing to finance budget deficits and refinance debt.

Front 15

Public Debt

Back 15

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

Front 16

U.S. Government Securities

Back 16

U.S. Treasury bills, notes, and bonds used to finance budget deficits; the components of the public debt

Front 17

External Public Debt

Back 17

Private or public debt owed to foreign citizens, firms, and institutions

Front 18

Public Investments

Back 18

Government expenditures on public capital (such as roads, highways, bridges, mass-transit systems and electric power facilities) and on human capital (such as education, training, and health)