Fiscal Policy and externalities vocab

Fiscal Policy

Government policy that attempts to manage the economy by controlling taxing and spending.

Expansionary Fiscal Policy

An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

Contractionary Fiscal Policy

Fiscal policy used to decrease aggregate demand or supply. Deliberate measures to decrease government expenditures, increase taxes, or both. Appropriate during periods of inflation.

Multiplier Effect

An effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent.

Federal Budget

a plan for the federal government's revenues and spending for the coming year

Fiscal Year

A 12-month period, October through Septmeber, for planning the federal budget

Budget Deficit

a shortfall of tax revenue from government spending

Budget Surplus

an excess of tax revenue over government spending

National Debt

the total amount of money that a country's government has borrowed, by various means.

Debt-to-GDP Ratio

government debt as a percentage of GDP, frequently used as a measure of a government's ability to pay its debts.

Debt Ceiling

an explicit, legislated limit on the amount of outstanding national debt

Continuing Resolution (CR)

A temporary funding law that Congress passes when an appropriations bill has not been decided by the beginning of the new fiscal year on October 1.

Government Shutdown

When the president and the Congress cannot agree on a budget funding is cut off and many programs that are considered nonessential are shut down.

President's Role in Budget

Propose a federal budget to congress, outlines the administration's priorities for spending, taxes, and programs for the upcoming fiscal year.

Congress' Role in Budget

to review, modify, and approve the federal budget

Office of Management and Budget (OMB)

Presidential staff agency that serves as a clearinghouse for budgetary requests and management improvements for government agencies.

Congressional Budget Office (CBO)

An agency of Congress that analyzes presidential budget recommendations and estimates the cost of proposed legislation.

Budget Committees

one committee in each house of Congress that supervises a comprehensive budget review process

Appropriations Committees

Decide how to spend money allocated to each spending category by Budget Resolution; 12 subcommittees for major areas of budget (ex. defense, energy, agriculture); major source of earmarking

Mandatory Spending

Federal spending required by law that continues without the need for annual approvals by Congress.

Discretionary Spending

Federal spending on programs that are controlled through the regular budget process

Interest on Debt

the payments required each budget year for at least the owed interest on the public debt by the United States.

Externalities (positive and negative)

Unpriced costs/damages and benefits that exist within a transaction between a buyer and seller

Positive (benefits) and negative (unpriced costs/damages) externalities

Excise tax

a tax on the production or sale of a good

Payroll tax

tax on wages and salaries to finance Social Security and Medicare costs

Corporate tax

a tax on the value of a company's profits

Income tax

A tax on people's earnings

Progressive vs. Regressive taxes

A progressive tax is defined as a tax whose rate increases as the payer's income increases. That is, individuals who earn high incomes have a greater proportion of their incomes taken to pay the tax. A regressive tax, on the other hand, is one whose rate increases as the payer's income decreases.

Market failure

a situation in which a market left on its own fails to allocate resources efficiently

Non-rival

when someone else's use doesn't diminish the usability of a good

Non-excludable

A characteristics of some goods where it is not possible to exclude someone from using a good, because it is not possible to charge a price. It is one of the characteristics of public goods.

Free Rider

a person who receives the benefit of a good but avoids paying for it

Asymmetrical Information

Individual on one side of the transaction has more and better information than the individual on the other