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Flashcards in ECON CH 9 Deck (19):
1

discretionary fiscal policy

deliberate changes in government spending (G), and taxation (T) to stabilize the economy

2

when gov enters our simple economy HHs can only spend

Yd=Y-T

3

discretionary fiscal policy

is the deliberate manipulation of taxes, and gov purchases in order to influence macro economic variables such as: aggregate output, unemployment, and inflation

4

the gov spending multiplier

is the ratio of the change in the equilibrium level of output to a change in gov spending

5

a tax cut (T<0)

increases disposable income (Yd), and leads to more consumption spending

6

the tax multiplier

is a negative number and it is smaller (in abs value) than the gov spending multiplier

7

the tax multiplier equation

MPC/1-MPC

8

federal budget

is the budget of the federal gov

9

T-G>0

surplus

10

T-G<0

deficit

11

the budget deficit (or surplus)

is the difference between gov spending and gov tax revenue in a given period (usually a year)

12

if G exceeds T

then the gov must borrow from the public to finance the deficit. it does so by selling treasury bonds and bills

13

federal debt

is the total amount owed by the federal gov. the debt is the sum of all accumulation deficits minus surpluses over time

14

tax revenue depends on

the taxable income

15

income depends on

on the state of the economy

16

full-employment budget

is what the federal budget would be if the economy were producing at a full employment level of output (natural rate of unemployment)

17

cyclical deficit

is the deficit that occurs b/c of a downturn in the business cycle

18

structural deficit

is the deficit that remains at full employment

19

automatic stabilizers

natural changes in fiscal variables (revenue and expenditure items in the fed budget) that automatically change with the state of the economy in such a way as to stabilize GDP