Chapter 23: Fiscal Policy and the Federal Budget

Crowding out occurs when

government borrowing pushes up interest rates, which causes a reduction in private consumption and investment.

recognition lag

The time delay between an actual change in economic activity and the ability for policymakers and others to discern the change

Crowding out occurs when

government borrowing pushes up interest rates, which causes a reduction in private consumption and investment.

recognition lag

The time delay between an actual change in economic activity and the ability for policymakers and others to discern the change

Fiscal policy

is the use of government spending and taxation to influence the economy.

Non discretionary government spending

is determined by current obligations, policies, and demographics, rather than by policymaker discretion.

budget deficit

A(n) occurs when the amount of government spending in a given period is larger than the amount of government revenue from taxes and earnings during that period.

budget surplus

A(n) occurs when the amount of government spending in a given period is less than the amount of government revenue from taxes and earnings during that period.

Contractionary fiscal policy

is used to decrease aggregate demand.

Discretionary spending items

include spending on national defense, transportation, and education.

The debt-to-GDP ratio measures

the size of a country's debt as a percentage of the country's gross domestic product.

Corporate income tax revenues come from

similar taxes imposed on U.S. corporations, although corporate tax bracket values differ from individual tax brackets.

administration lag

The time it takes for Congress and the president to agree on what fiscal policy to use