chapter 17

Automatic stabilizers

Tax and spending rules that slow the decrease in aggregate demand when the economy slows and restrain aggregate demand when the economy speeds up.

Balanced budget

When government spending and taxes are equal.

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.

Contractionary fiscal policy

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

Corporate income tax

A tax imposed on corporate profits.

Crowding out

Federal spending and borrowing causes interest rates to rise and business investment to fall.

Discretionary fiscal policy

The government passes a new law that changes overall tax or spending levels to influence economic activity.

Estate and gift tax

A tax on assets passed to the next generation after death or as gifts during life.

Excise tax

A tax on specific goods such as gasoline, tobacco, and alcohol.

Expansionary fiscal policy

Fiscal policy that increases aggregate demand through increases in government spending or cuts in taxes.

Implementation lag

The time it takes for funds related to fiscal policy to be dispersed for program implementation.

Individual income tax

A tax based on all forms of income received by individuals.

Legislative lag

The time it takes to get a fiscal policy bill passed.

Marginal tax rates

The tax that must be paid on all yearly income.

National debt

The total accumulated amount the government has borrowed and not yet paid back.

Payroll tax

A tax based on pay received from employers, providing funds for Social Security and Medicare.

Progressive tax

A tax that collects a greater share of income from high-income earners than from low-income earners.

Proportional tax

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

Recognition lag

The time it takes to determine that a recession has occurred.

Regressive tax

A tax where higher-income individuals pay a smaller share of their income in tax.

Standardized employment budget

The budget deficit or surplus adjusted for what it would be if the economy were producing at potential GDP.