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Principles of Macroeconomics 2e

Key Terms

Principles of Macroeconomics 2eKey Terms

automatic stabilizers
tax and spending rules that have the effect of slowing down the rate of decrease in aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation
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, either 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 explicitly changes overall tax or spending levels with the intent of influencing the level of overall economic activity
estate and gift tax
a tax on people who pass assets to the next generation—either after death or during life in the form of gifts
excise tax
a tax on a specific good—on gasoline, tobacco, and alcohol
expansionary fiscal policy
fiscal policy that increases the level of aggregate demand, either through increases in government spending or cuts in taxes
implementation lag
the time it takes for the funds relating to fiscal policy to be dispersed to the appropriate agencies to implement the programs
individual income tax
a tax based on the income, of all forms, received by individuals
legislative lag
the time it takes to get a fiscal policy bill passed
marginal tax rates
or the tax that must be paid on all yearly income
national debt
the total accumulated amount the government has borrowed, over time, and not yet paid back
payroll tax
a tax based on the pay received from employers; the taxes provide funds for Social Security and Medicare
progressive tax
a tax that collects a greater share of income from those with high incomes than from those with lower incomes
proportional tax
a tax that is a flat percentage of income earned, regardless of level of income
recognition lag
the time it takes to determine that a recession has occurred
regressive tax
a tax in which people with higher incomes pay a smaller share of their income in tax
standardized employment budget
the budget deficit or surplus in any given year adjusted for what it would have been if the economy were producing at potential GDP
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