Macroeconomics - Ch 13

Question 1

Fiscal policy

Answer 1

deliberate changes in government spending and tax collections designed to achieve full employment, control inflation, and encourage economic growth

Question 2

Council of Economic Advisors (CEA)

Answer 2

group of 3 economists appointed by the president to provide expertise and assistance on economic matters

Question 3

Expansionary fiscal policy

Answer 3

government spending increases, tax reductions, or both, designed to increase aggregate demand then therefore raise real GDP

Question 4

Budget deficit

Answer 4

government spending in excess of tax revenues

Question 5

Contractionary fiscal policy

Answer 5

government spending reductions, tax increases, or both, designed to decrease aggregate demand and therefore lower or eliminate inflation

Question 6

Budget surplus

Answer 6

tax revenues in excess of government spending

Question 7

Built-in stabilizer

Answer 7

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 an expansion without requiring explicit action by policymakers

Question 8

Progressive tax system

Answer 8

average tax rate (tax revenue/GDP) rises with GDP

Question 9

Proportional tax system

Answer 9

average tax rate remains constant as GDP rises

Question 10

Regressive tax system

Answer 10

average tax rate falls as GDP rises

Question 11

Cyclically adjusted budget (full-employment budget)

Answer 11

adjusts actual Federal budget deficits and surpluses to account for the changes in tax revenues that happen automatically whenever GDP changes; measures what the Federal budget deficit/surplus would have been under existing tax rates and gov’t spending levels if the economy had achieved its full-employment level of GDP (its potential output)

Question 12

Cyclical deficit

Answer 12

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

Question 13

Political business cycles

Answer 13

swings in overall economic activity and real GDP resulting from election-motivated fiscal policy rather than from inherent instability in the private sector

Question 14

Crowding-out effect

Answer 14

an expansionary fiscal policy (deficit spending) may increase the interest rate and reduce investment spending, thereby weakening or canceling the stimulus of the expansionary policy; rising interest rate might also potentially crowd out interest-sensitive consumption spending

Question 15

Public debt

Answer 15

US national debt; accumulation of all past Federal deficits and surpluses

Question 16

US Securities

Answer 16

financial instruments issued by the Federal gov’t to borrow money to finance expenditures that exceed tax revenues; include treasury bills (short-term securities), treasury notes (medium-term securities), treasury bonds (long-term securities), and US savings bonds (long-term, nonmarketable bonds)

Question 17

External public debt

Answer 17

the portion of the public debt owed to foreign citizens, firms, and institutions

Question 18

Public investments

Answer 18

gov’t 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)