Econ Chapter 29

  1. The annual statement of the federal government’s outlays and tax revenues is
    the federal budget
  2. The federal budget has two purposes:
    • finance the business of government
    • pursue the government's fiscal policy
  3. The use of the federal budget to achieve macroeconomic objectives, such as full employment, sustained economic growth, and price level stability, is
    Fiscal Policy
  4. Revenues come from:
    • personal income taxes
    • corporate income taxes
    • indirect income taxes
    • investment income
  5. Outlays are:
    • transfer payments
    • expenditures on goods and services
    • debt interest
  6. If revenues exceed outlays, the government has a
    surplus budget
  7. If outlays exceed revenues, the government has a
    deficit budget
  8. If revenues equal outlays, the government has a
    balanced budget
  9. Government debtis the total amount that the government borrows. It is the sum of:
    the past deficit budgets minus the sum of the past surplus budgets
  10. An income tax _______ the _______
    • decrease
    • supply of labour
  11. The vertical gap between the before-tax
    and after-tax wage rates is
    the tax wedge
  12. When the quantity of labour employed decreases, potential GDP.....
  13. Real after tax rate % =
    (Nominal Interest Rate %)(1-Tax Rate %) - Inflation %
  14. Discretionary fiscal policy is a policy action that is
    initiated by an act of Parliament.
  15. Automatic fiscal policyis a change in fiscal policy that is
    Triggered by the state of the economy
  16. An increase in government expenditure or a tax cut ______ aggregate demand.
    • increases
    • *The multiplier process increases aggregate demand further*
  17. A decrease in government expenditure or a tax increase ________ aggregate demand.
  18. The magnification effect of a change in government expenditure on goods and services on aggregate demand is the
    Government expenditure multiplier
  19. The magnification effect of a change in autonomous taxes on aggregate demand is the
    Autonomous tax multiplier
  20. The magnification effect on aggregate demand of a simultaneous change in government expenditure and taxes that leaves the budget balance unchanged is the
    Balanced budget multiplier
  21. Recognition Lag
    Is the time it takes to figure out that fiscal policy actions are needed.
  22. Law-Making Lag
    Is the time it takes parliament to pass the laws needed to change taxes or spending.
  23. Impact Lag
    • Is the time it takes from passing a tax or spending change to its effects on real GDP being
    • felt.
  24. Automatic stabalizers are
    • mechanisms that stabilize real GDP without explicit action by the government.
    • Induced taxes and needs-tested spending are automatic stabilizers.
  25. Taxes that vary with real GDP are
    Induced taxes
  26. When the economy is in a recession, unemployment is _____ and transfer payments ______.
    • high
    • increase
  27. When the economy expands, unemployment _____ and transfer payments ______.
    • falls
    • decrease
  28. Induced taxes and transfer payments _______ the multiplier effects of changes in autonomous expenditure.
  29. The budget balance that would occur if the economy were at full employment and real GDP were equal to potential GDP is the
    Structural surplus or deficit
  30. The actualy surplus or deficit minus the structural surpllus or deficit is the
    Cyclical surplus or deficit
Card Set
Econ Chapter 29
final exam ch.29