Macro Ch.13

Cyclically adjusted budget balance

is an estimate of what the budget balance would be if real GDP were exactly equal to potential output.

Expansionary fiscal policy

fiscal policy that increases aggregate demand & can close a recessionary gap. -increase in gov purchases of goods and services -cut in taxes -increase in gov. transfers

Discretionary fiscal policy

fiscal policy that is the result of deliberate actions by policy makers rather than rules.

Contractionary fiscal policy

fiscal policy that reduces aggregate demand & can close an inflationary gap. -reduction in gov. purchases of goods and services -increase in taxes -reduction in gov. transfers

In the case of fiscal policy, there is an important reason for caution: there are significant lags in its use.

-First, policymakers must collect and analyze economic data (this takes time, 3-6 months) -Government officials need to develop a spending or tax plan(this takes time, perhaps as much as 12 months) -Implementation of the action plan (spending the money) and when it affects the economy (this takes time, 4-6 months)

Automatic Stabilizers

are government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands.

Contractionary fiscal policies make a

budget surplus larger or a budget deficit smaller

expansionary fiscal policies make a

budget surplus smaller or a budget deficit larger

Shift in the aggregate demand curve can be caused by:

changes in taxes or government spending

Can expansionary fiscal policy actually work?

depends on the circumstances. it can. in a recessionary gap, expansionary fiscal policy can help.

Budget Balance

difference between the gov's revenue and its spending. A.k.a savings by government. S= T-G-TR

Lum sum taxes

dont depend on the taxpayer's income

debt GDP ratio can fall

even when debt is rising, as long as GDP grows faster than debt

Fiscal Year

from October 1 to September 30 and us labeled according to the calendar year in which it ends. ex: 2010 fiscal year began October 1, 2009 to September 30, 2010

Public debt

gov debt held by individuals and institutions outside the government

Social Insurance

gov. programs that are intended to protect families against economic hardship

Budget deficit tends to rise during _______ and fall during __________.

recessions, expansions.

Implicit liabilities

spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics

debt GDP ratio

the gov's debt as a percentage of GDP

Deficit depends on

the state of the economy

The budget deficit as a percentage of GDP moves closely in tandem with the _________.

unemployment rate