Homework 3

Budget Deficit

gov spending exceeds revenue

National Debt

total amount gov owes from past borrowing

Trade Deficit

imports > exports

Fiscal Surplus

revenue > spending

An increase in spending through __________ can stimulate the economy during a recession

fiscal policy

Trade Balance

difference between exports and imports

Fiscal Policy

gov adjustments in spending and taxation

Inflation Rate

measure of the percentage increase in prices

gov borrowing under high pressure creates higher interest rates that can _________ investments from private businesses

crowd out

Proportional Tax

same rate to all income levels

Excise Tax

charged on specific goods (alcohol, gas)

Leading Indicators

predict future economic activity

Lagging Indicators

reflect changes after the economy has moved

Coincident Indicators

show current economic activity

Countercyclical Indicators

move in the opposite direction of economic trends

A ____________ can lead to a trade deficit by making imports cheaper than exports

stronger currency

The ______________ has a direct impact on interest rates, which in turn affects AD

money supply

Automatic Stabilizers

economic mechanisms that respond w/o intervention

Crowding Out Effect

reduced private investment due to gov borrowing

Multiplier Effect

increase in economic output resulting from investment

Fiscal Stimulus

Gov response to a downturn

Mandatory Spending

required by existing law

Discretionary Spending

decided by annual appropriations

Entitlement Programs

programs providing benefits to eligible individuals

Capital Expenditures

funding for physical assets like infrastructure

Public Investment In Infrastructure

enhances economic capacity

Public Investment In Education

increases human capital and productivity

Public Investment in R&D

fosters tech advancements

Public Welfare Spending

supports individuals in need

Sustainable Growth

long-term stable increase in GDP

Inflationary Growth

rapid increase in prices and output

Stagnant Growth

little to no change in GDP

Boom Growth

rapid and excessive economic expansion

Expansionary Fiscal Policy

increases AD

Contractionary Fiscal Policy

decreases AD

Lowering Interest Rates

encourages borrowing and spending

Increasing Money Supply

stimulates economic activity

Selling Bonds

reduces liquidity in the market

Raising Reserve Requirements

limits banks’ ability to lend

Higher Interest Rates

Reduce levels of private investment

Increased Inflation

higher prices due to excess demand

Economic Growth

long-term benefits if spent on productive investment

Foreign Borrowing

increased dependence on international capital