Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key


Play button


Play button




Click to flip

18 Cards in this Set

  • Front
  • Back
Budget Deficit?
Amount by which government expenditures exceed government revenues in a given year

i.e. Gs > Taxes
Budget Surplus?
Taxes (Gov. Revenues) > Government Spending/Expenditures
Public Debt?
Total accumulation of deficits - Surplus

·Total Amount of Money owed by Federal government to holders of US securities
Annually Balanced Budget?
The Goal of Public Finance
To balance budget, government must:
1) Increase Tax Rates
2) Reduce Government Expenditures
3) Do Both

• However, each are contractionary: Decreases Aggregate Demand
To avoid surplus, government must:
1) Cut Tax Rates
2) Increase Government Expenditures
3) Do Both

• Increass Inflation
Pursuit of Annually Balanced Budget:
Intensify the Business Cycle
Cyclically Balanced Budget?
Equality of Government Expenditures and Net Tax Collections over the course of Business Cycle

• Deficits During Recession offset by Supluses during Inflation/Prosperity
Times of Prosperity = ?
Times of Inflation
Problem with Cyclically balanced?
Upswings and downswings of business cycle are not always of equal magnitude and/or duration
Functional Finance?
Use of fiscal policy (Incur deficits and surpluses) to achieve noninflationary full-employment GDP w/o regard to effect on public debt
3 Main sources of large budget deficits and public debt (currently $6.2 trillion):
1) Deficit Financing of Wars
2) Revenue Declining during recessions
3) Lack of fiscal discipline by elected leaders
Where is Primary Ownership of Debt in correspondance to Federal gov and Reserve?
57% outside mostly by people and institutions abroad
43% held by Fed mostly in US gov agencies
2 main reasons for no worry of Bankruptcy in Federal Government
1) Refinancing (Gov. sells new bonds to pay off holders of maturing bonds)
2) Taxation (Can make interest payments on debt)
The borrowing and interest payments of public debt:
1) Increase Income Inequality
2) Require Higher taxes lowering incentives
3) Prevent the growth of capital stock through Crowding Out
Crowding-Out effect?
Large Public Debt results in higher real interest rates and reduced private investment spending
2 factors that can reduce net economic burden shifted to future generations (Increase future production capacity):
1) Public investment (highways, wastewater treatment facilities, "human capital")
2) Public-private complementaries (Inc in Expected rate of return from public investment)
Federal budget returned to deficit in 2002 b/c of:
1) Recession of 2001
2) Stock market Crash of 2001-2002
3) Phased Tax-Rate cuts enacted in 2001
4) Increased Government Spending on War on Terrorism