notes for exam 2

notes for exam 2 - GVT IN THE ECONOMY Fiscal policy...

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GVT IN THE ECONOMY Fiscal policy The government’s spending and taxing policies Monetary policy Behavior of the Fed concerning the nation’s money supply Discretionary fiscal policy Changes in taxes or spending that are the result of deliberate changes in government policy Net taxes (T) Taxes paid by firms and households to the gvt minus transfer payments made to households by fvt Disposable/after-tax income Total income minus net taxes (Y-T) =C+S Y-T = C+S Budget deficit/surplus The difference between what a gvt spends and what it collects in taxes in a given period G - T Equilibrium Output (Income) Y = C + I + G Saving/investment approach to equilibrium S+T = I + G Government spending multiplier 1/MPS The ratio of the change in the equilibrium level of output to a change in government spending Tax multiplier The ratio of change in the equilibrium level of output to a change in taxes = - (MPC/MPS) Balanced-budget multiplier The ration of change in the equilibrium level of output to a change in gvt spending where the change in spending is balanced by a change in taxes does not create a deficit =1 Federal budget Budget of federal gvt political document that favors certain groups reflection of goals of gvt embodiment of beliefs how gvt should manage macroeconomy (if at all) Federal surplus or deficit Federal gvt receipts - expenditure Federal debt The total amt owed by the federal gvt Privately held federal debt Privately held (non-gvt owned) debt of the US gvt Automatic stabilizers Revenue and expenditure in the federal budget that automatically change with the
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state of the economy stabilize GDP Fiscal drag Negative effect on economy that occurs when avg tax rates increase because taxpayers have moved into higher income brackets during an expansion Full-employment budget When economy produces at the full- employment level of output Structural deficit Deficit that remains at full employment Cyclical deficit Deficit that occurs because of a downturn in the business cycle CHAPTER 10 Money Anything that is generally accepted as a medium of exchange Barter Direct exchange of goods and services for other goods and services Medium of exchange/means of payment What sellers generally accept and buyers
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This note was uploaded on 04/03/2012 for the course ECON 201 taught by Professor Shea during the Fall '08 term at Maryland.

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notes for exam 2 - GVT IN THE ECONOMY Fiscal policy...

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