Fiscal policy is government
policy on spending and taxes.
Stabilization policy is
government action to keep
output close to potential output.
The budget deficit is the
excess of government spending
over government receipts.
The national debt is the stock
of outstanding government
debt.
Net taxes are taxes minus
transfers.
The balanced budget
Multiplier says that a rise in
government spending plus an
equal rise in taxes leads to
higher output.
A budget is the spending and
revenue plans of an individual, a
company or a government.
Higher government spending
on goods and services
increases equilibrium output.
With a given tax rate, tax
revenue rises but the budget
deficit increases (or the budget
surplus falls).
For given government spending
G, a higher tax rate reduces
both equilibrium output and the
budget deficit.
The fiscal stance shows the
effect of fiscal policy on
demand and output.
The structural budget shows
what the budget would be if
output were at potential output.
The inflation-adjusted budget
uses real not nominal interest
rates to calculate government
spending on debt interest.
Automatic stabilizers reduce
the multiplier and damper the
output response to demand
shocks.
Discretionary fiscal policy is
decisions about tax rates and
levels of government spending.
The government’s debts are
called the national debt.
The trade balance is the value
of net exports. If these are
positive, the economy has a
trade surplus. If imports
exceed exports, the economy
has a trade deficit.
The marginal propensity to
import (MPZ) is the fraction of
each extra pound of national
income that domestic residents
wish to spend on extra imports.
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