Unit 3: Notes and Need-To-Knows 2.25.15

Changes in expenditures or tax revenues of federal government:

• Taxes: government increase or decrease tax
• Spending: government increase or decrease spending

Balanced Budget: 

• revenue = expenditures

Budget Deficit:

• revenue is not equal to expenditures
• 
  

Government Debt: 
Government must borrow money when it runs a budget deficit.

Government borrows from:

• 1. Individuals
• 2. Financial Institutions
• 3. Corporations
• 4. Foreign Governments 

Discretionary: increasing or decreasing government spending and/or taxes in order to return the economy to full employment. (action)

Automatic: unemployment compensation and marginal tax rates are example of automatic policies that help mitigate the effects of recession and inflation. (no action)

Expansionary Fiscal Policy: policy designed to increase aggregate demand

• by increasing spending and decrease taxes

Contractionary Fiscal Policy: policy designed to decrease aggregate demand
by decreasing spending and increase taxes 

• 
  

Automatic or Built-in Stabilizers:
Things that increases governments budget deficit during a recession and increase its budget surplus during inflation without requiring explicit action.