Tony Lee Econ Ap Period 2 11/28/2009 Econ Ch.

34 1) Employment Act of 1946- the act was put into act after world war two to ensure stability in the economy and preserve jobs 2) Council of Economic Committee- is a group of three respected economists who advise the president of the United States on economic policy 3) Joint Economic Committee- committee responsible for reporting the current economic condition of the United States 4) fiscal policy- a government policy for dealing with the budget (especially with taxation and borrowing) 5) discretionary policy- government economic policy that is not automatic or built into the system 6) non-discretionary policy- government economic policy that is automatic or built into the system 7) expansionary policy- when the Federal Reserve is using its tools to stimulate the economy 8) contractionary policy- policy that seeks to reduce the size of the money supply 9) increased government spending- results in a increase in taxes and interest rates by the government 10) increased taxes- used to pay for public projects and government costs 11) decreased government spending- results in a decrease in taxes and interest rates by the government 12) tax reduction- reduced taxes encourage and increase spending 13) multiplier effect- an effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent 14) shift in AD- shows which way the economy is going 15) financing of deficits- how the nations deficits are managed 16) budget deficit- an excess of expenditures over revenues 17) borrowing from the public- the government does this through bonds 18) money creation- money is created but the more that is created the more inflation there is 19) debt retirement- overnight funds are lent among banks to temporarily lift their reserves to mandated levels 20) debt reduction- any voluntary scheme that lessens the burden on the debtor nation to service its external debt 21) idle surplus- money that is idle and waiting to be used 22) impounding- to seize or take into control or custody 23) policy options: G or T- it shows which way the economy can go 24) built-in stability- system that tends to direct the system toward equilibrium 25) automatic stabilizer- government expenditures or receipts that automatically increase or decrease without requiring action by Congress or the President 26) tax progressively- a tax by which the tax rate increases as the taxable amount increases

27) progressive tax system- a tax system in which those who earn higher incomes pay a higher percentage of their income than those who earn lower 28) proportional tax system- a system in which all levels of income are taxed at the same rate 29) regressive tax system- a tax system that provides that average tax rates decrease with increases in individuals' income brackets- a tax system that provides that average tax rates decrease with increases in individuals' income brackets 30) full employment budget- deficit existing in optimum conditions 31) standardized budget- the level of the federal budget surplus or deficit that would occur
under current law if the economy operated at potential GDP

32) recognition lag- the time between a shock to the economy and realization that the shock has occurred 33) admisistrative lag- time elapsed between the recognition of a problem and the action taken to solve it 34) operational lag- period between the point at which a policy or procedure is implemented 35) crowding out effect- any reductions in private consumption or investment that occurs because of an increase in government spending 36) recession gap- gap where there is a recession 37) inflation gap- gap in time where there is a period of inflation