| aggregate demand | Sum of the values of all of the final goods purchased in an
economy
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| automatic stabilizer | Policy that reduces the impact of an economic shock without
requiring case-by-case intervention. Proportional income taxes and unemployment
insurance are examples.
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| balanced budget multiplier | Increase in output that results from equal increases in
taxes and government purchases.
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| budget constraint | Limit to the amount of money an individual, a firm, or the government can spend. An individual’s purchases might be constrained by his or her income
(or wealth).
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| budget deficit | The difference between the amount of money the government spends and the revenue that it receives in the form of taxes.
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| budget surplus | Opposite of budget deficit .
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| consumption function | Equation relating consumption to disposable income.
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| disposable income | Income available for a household to spend; total income less taxes plus transfers.
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| equilibrium level of output | Level of output at which aggregate supply equals aggregate
demand.
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| fiscal policy | Government policy with respect to government purchases, transfer payments, and the tax structure.
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| full-employment budget surplus | What the budget surplus would be (hypothetically) with existing fiscal policy if the economy were at full employment.
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| marginal propensity to consume (MPC) | Increase in consumption for each $1 increase in disposable income.
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| marginal propensity to save (MPS) | Increase in savings for each $1 increase in disposable
income. Equals 1 minus the marginal propensity to consume.
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| multiplier | Increase in endogenous variable for each $1 increase in exogenous variable; particularly, increase in GDP for each $1 increase in government purchases.
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