Chapter 17 Macroeconomics

Budget Deficit

When the federal government spends more money than it receives in taxes in a given year

Budget Surplus

When the government receives more money in taxes than it spends in a year

Balanced Budget

When government spending and taxes are equal

Major Federal Spending

National Defense

Social Security

Health Programs

Interest Payments

Individual Income Tax

A tax based on the income, of all forms, received by individuals

Payroll Tax

A tac based on the pay received from employers

These taxes provide funds for Social Security and Medicare

Progressive Tax

A tax that collects a greater share of income from those with high incomes that from those with lower incomes

What the US income tax is

Marginal Tax Rate

The tax rate an individual would pay on one additional dollar of income; the tax percentage on the last dollar earned; currently ranges from 10% to 35%

Proportional Tax

A tax that is a flat percentage of income earned, regardless of level of income

Regressive Tax

A tax in which people with higher incomes pay a smaller share of their income in tax

Corporate Income Tax

A tax imposed on corporate profits

Excise Tax

A tax on a specific specific good, like on gasoline, tobacco, and alcohol

Estate and Gift Tax

A tax on people who pass assets to the next generation - either after death or during life in the form of gifts

The Revenue Sources for State and Local Governments are

Sales taxes

Property taxes

Revenue passes along from the federal government

Personal and corporate income taxes

A variety of fees and charges

Annual Budget Deficit (or Surplus)

The difference between the tax revenue collected and spending over a fiscal year

Fiscal year starts October 1 and ends September 30 of the next year

National Debt

The total accumulated amount the government has borrowed, over time, and not yet paid back

The dollar value of all the outstanding Treasury bonds on which the federal government owes money

Expansionary Fiscal Policy

Fiscal policy that increases the level of aggregate demand, either through increases in government spending or cuts in taxes

Contractionary Fiscal Policy

Fiscal policy that decreases the level of aggregate demand, either through cuts in government spending or increases in taxes

Discretionary Fiscal Policy

the government passes a new law that explicitly changes overall tax or spending levels with the intent of influencing the level of overall economic activity

The 2009 stimulus package is an example

Automatic Stabilizers

Tax and spending rules that have the effect of slowing down the rate of decrease in aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation

Examples are unemployment insurance and food stamps

Standardized Employment Budget

The budget deficit or surplus in any given year adjusted for what it would have been if the economy were producing at potential GDP

If people who look for work were making normal profits

Eliminates the impact of the automatic stabilizers

Crowding Out

Where government borrowing and spending results in higher interest rates, which reduces business investment and household consumption

Recognition Lag

The time it takes to determine that a recession has occurred

Legislative Lag

The time it takes to get a fiscal policy bill passed

Implementation Lag

The time it takes for the funds relating to fiscal policy to be dispersed to the appropriate agencies to implement the programs