Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
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 |
