Government Debt and Deficits

These flashcards cover key concepts related to government debt and deficits, fiscal policy, and budgetary components as outlined in the lecture notes.

Government Budget Constraint

Government expenditures must be financed by income or borrowing.

Budget Deficit

The excess of government expenditure over tax revenues in a given year.

Primary Budget Deficit

The difference between the government’s overall budget deficit and its debt-service payments.

Structural Budget Deficit

The budget deficit that exists when the economy is at its full potential (Y*); also known as the cyclically adjusted deficit.

Crowding Out

The reduction in private expenditure caused by a rise in interest rates that follows an expansionary fiscal policy.

Fiscal Policy

The use of government spending and tax policies to influence the economy.

Debt-Service Payments

Interest payments on the outstanding stock of government debt.

Balanced Budget

A budget where total revenues equal total expenditures, preventing the government from incurring deficits.

Cyclically Balanced Budgets

Balancing the budget over the course of the business cycle to align short-term stabilization with long-term fiscal prudence.

Debt Dynamics Equation

The relationship that relates the government budget deficit to the change in the debt-to-GDP ratio: Δd = x + (r − g) × d.