Macro Economics Chapter 11 Key Words Flashcards
automatic stabilizers
Federal expenditures and tax revenues that automatically change levels in order to stabilize an economic expansion or contraction; sometimes referred to as nondiscretionary fiscal policy.
balanced budget multiplier
An equal change in government spending and taxes, which changes aggregate demand by the amount of the change in government spending.
budget deficit
A budget in which government expenditures exceed government revenues in a given time period.
budget surplus
A budget in which government revenues exceed government expenditures in a given time period.
discretionary fiscal policy
The deliberate use of changes in government spending or taxes to alter aggregate demand and stabilize the economy.
fiscal policy
The use of government spending and taxes to influence the nation’s spending, employment, and price level.
laffer curve
A graph depicting the relationship between tax rates and total tax revenues.
marginal propensity to consume (MPC)
The change in consumption spending resulting from a given change in income.
marginal propensity to save (MPS)
The change in saving resulting from a given change in income.
spending multiplier (SM)
The ratio of the change in real GDP to an initial change in any component of aggregate expenditures, including consumption, investment, government spending, and net exports. As a formula, spending multiplier equals 1/(1 - MPC) or 1/MPS.
supply-side fiscal policy
A fiscal policy that emphasizes government policies that increase aggregate supply in order to achieve long-run growth in real output, full employment, and a lower price level.
tax multiplier
The change in aggregate demand (total spending) resulting from an initial change in taxes. As a formula, tax multiplier equals 1 - spending multiplier.
