ch 9 macroeconomics

balanced-budget multiplier =

1

aggregate expenditure[now includes gov]

C+I+G

discretionary fiscal policy

Changes in taxes or spending that are the result of deliberate changes in government policy.

automatic destabilizer

Revenue and expenditure items in the federal budget that automatically change with the state of the economy in such a way as to destabilize GDP.

automatic stabilizers

Revenue and expenditure items in the federal budget that automatically change with the state of the economy in such a way as to stabilize GDP.

net taxes (T )

Taxes paid by firms and households to the government minus transfer payments made to households by the government.

federal budget

The budget of the federal government.

cyclical deficit

The deficit that occurs because of a downturn in the business cycle.

structural deficit

The deficit that remains at full employment.

budget deficit

The difference between what a government spends and what it collects in taxes in a given period: G - T.

fiscal drag

The negative effect on the economy that occurs when average tax rates increase because taxpayers have moved into higher income brackets during an expansion.

privately held federal debt

The privately held (non-government-owned) debt of the U.S. government.

balanced-budget multiplier

The ratio of change in the equilibrium level of output to a change in government spending where the change in government spending is balanced by a change in taxes so as not to create any deficit. The balanced-budget multiplier is equal to 1: The change in Y resulting from the change in G and the equal change in T are exactly the same size as the initial change in GorT.

tax multiplier

The ratio of change in the equilibrium level of output to a change in taxes.

government spending multiplier

The ratio of the change in the equilibrium level of output to a change in government spending.

federal debt

The total amount owed by the federal government.

disposable, or after-tax, income (Yd)

Total income minus net taxes: Y - T.

full-employment budget

What the federal budget would be if the economy were producing at the full-employment level of output.

federal surplus (+) or deficit (-)

[federal gov saving] Federal government receipts minus expenditures.

increasing gov spending is considered?

direct

a tax cut increases?

disposable income

gov spending has a direct effect on AE but taxes?

do not

When the economy goes into a recession, tax revenues will?

fall, even if rates remain con- stant, and when the economy picks up, so will tax revenues.

if taxes is larger than gov

gov is spending less than its collecting taxes, the gov is running a surplus

if government spending is larger than taxes

gov must borrow tom the public to fiance the deficit, it does this buy selling treasury bonds & bills

decreasing taxes is considered ?

indirect

G+I are?

injections

S+T are?

leakages

deficits fall in expansions and

rise in recessions, other things being equal.

In recessions

taxes fall and expenditures rise, which create positive effects on the economy, and in expansions the opposite happens.

during expansions,

the government automati- cally takes in more revenue because people are making more money that is taxed.

If inflation decreases in a recession,

there is an automatic decrease in government spending, which makes the recession worse.

how do you find the tax multiplier?

-MPC/MPS