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