Glossary
Aggregate Demand
The total demand for all goods and services produced in an economy at a given price level and in a given time period.
Example:
When consumer confidence is high and people are spending more, it leads to an increase in aggregate demand for goods and services.
Automatic Stabilizers
Fiscal policies already in place that automatically counteract economic fluctuations without needing new government action.
Example:
During a recession, increased payouts for unemployment benefits act as an automatic stabilizer, providing income to those out of work.
Budget Deficits
Occur when government spending exceeds government tax revenues in a given fiscal year.
Example:
During a recession, increased government spending on unemployment benefits and reduced tax revenues can lead to larger budget deficits.
Budget Surpluses
Occur when government tax revenues exceed government spending in a given fiscal year.
Example:
During an economic boom, higher tax revenues from increased incomes and profits can result in budget surpluses for the government.
Business Cycle
The natural fluctuation of economic activity, characterized by periods of expansion (growth) and contraction (recession).
Example:
The economy moves through phases of growth and decline, illustrating the cyclical nature of the business cycle.
Discretionary Fiscal Policy
Fiscal policy that requires new laws or decisions by the government to implement, unlike automatic stabilizers.
Example:
A new law passed by Congress to fund a large infrastructure project is an example of discretionary fiscal policy.
Fiscal Policies
Government decisions regarding spending and taxation used to influence the economy.
Example:
A government's decision to increase infrastructure spending or cut taxes is an example of fiscal policy aimed at boosting economic activity.
GDP (Real GDP)
The total value of all final goods and services produced within a country's borders in a specific time period, adjusted for inflation.
Example:
Economists often look at changes in Real GDP to determine if an economy is growing or contracting, as it reflects actual output rather than just price changes.
Inflationary Period
A phase of the business cycle characterized by a sustained increase in the general price level of goods and services, often due to excessive aggregate demand.
Example:
If consumer spending is too high, it can lead to an inflationary period where prices for everyday items like groceries and gas rise rapidly.
Price Level
The average of current prices across the entire spectrum of goods and services produced in an economy.
Example:
If the price level in an economy rises significantly, it means that the purchasing power of money has decreased.
Progressive Income Taxes
A tax system where individuals with higher incomes pay a larger percentage of their income in taxes.
Example:
As a person's salary increases, they move into a higher tax bracket, meaning their progressive income taxes take a larger share of their earnings.
Recessionary Period
A phase of the business cycle characterized by a significant decline in economic activity, typically marked by falling GDP, rising unemployment, and reduced spending.
Example:
During a recessionary period, many businesses experience reduced sales and may lay off workers, leading to higher unemployment rates.
Unemployment Benefits
Payments made by the government to individuals who have lost their jobs, providing a safety net during economic downturns.
Example:
When a factory closes, workers who lose their jobs can apply for unemployment benefits to help cover their living expenses.
Welfare Programs
Government initiatives designed to provide financial or other assistance to individuals and families in need, such as Temporary Aid to Needy Families (TANF).
Example:
Families struggling to afford basic necessities might receive assistance through welfare programs like food stamps or housing aid.