When tax revenue is greater than government spending in a given year, the budget is said to be in surplus.
Missing Word
surplus
A budget surplus occurs when a government collects more in taxes than it spends during the year. A surplus can be used to pay down part of the national debt.
Category: Deficits and Debt
Question 2
To finance its borrowing, the federal government sells bonds, notes, and bills issued by the U.S. Department of the Treasury.
Missing Word
Treasury
The Department of the Treasury issues the bonds, notes, and bills that the federal government sells to borrow money. Each is a promise to repay the amount borrowed with interest.
Category: Deficits and Debt
Question 3
When the federal government spends more than it collects in taxes during a year, it runs a deficit.
Missing Word
deficit
A budget deficit is the amount by which government spending exceeds tax revenue in a single year, and the government borrows to cover it. Each year's deficit adds to the national debt, which is the accumulated total of past borrowing.
Category: Deficits and Debt
Question 4
A tax levied on one particular good, such as gasoline, tobacco, or alcohol, is called an excise tax.
Missing Word
excise
An excise tax applies to a specific product rather than to income or to purchases in general. Gasoline, tobacco, and alcohol are standard examples in the federal tax system.
Category: Taxation
Question 5
A tax that takes a smaller percentage of income from high earners than from low earners is called regressive.
Missing Word
regressive
A regressive tax places a relatively heavier burden on people with lower incomes. The Social Security payroll tax becomes regressive above its wage ceiling because income beyond the cap is not taxed.
Category: Taxation
Question 6
The tax rate that applies to each additional dollar of income a person earns is called the marginal tax rate.
Missing Word
marginal
The marginal tax rate is the rate on the last or next dollar earned, determined by the bracket that dollar falls into. It is usually higher than the average rate, which is total tax divided by total income.
Category: Taxation
Question 7
If federal spending and tax revenue are exactly equal for the year, the government has a balanced budget.
Missing Word
balanced
A balanced budget means spending equals tax revenue, so the year ends with neither a deficit nor a surplus. Most states are required to balance their budgets, while the federal government has no such rule.
Category: Deficits and Debt
Question 8
The federal health insurance program for Americans age 65 and older, funded in part by a payroll tax, is called Medicare.
Missing Word
Medicare
Medicare pays for health care for older Americans and is financed partly by its own payroll tax. Together with Medicaid, it makes health care one of the largest areas of federal spending.
Category: Government Spending
Question 9
The health program for low-income Americans that is funded jointly by the federal government and the states is called Medicaid.
Missing Word
Medicaid
Medicaid provides health coverage to people with low incomes, and states share its cost with the federal government. Its growth has contributed to the rising share of federal spending that goes to health care.
Category: Government Spending
Question 10
Fiscal policy in which lawmakers pass a new law to deliberately change tax or spending levels is called discretionary fiscal policy.
Missing Word
discretionary
Discretionary fiscal policy requires a deliberate decision and new legislation, such as a stimulus package. It contrasts with automatic stabilizers, which change taxes and spending under existing law.
Category: Fiscal Policy and AD/AS
Question 11
If aggregate demand fails to keep pace with growing aggregate supply, output can rise while the overall price level falls, a situation called deflation.
Missing Word
deflation
Deflation is a sustained decline in the overall price level. In the AD/AS model it can occur when aggregate supply shifts right faster than aggregate demand.
Category: Fiscal Policy and AD/AS
Question 12
Fiscal policy cannot sustainably push output above potential GDP, because trying to do so leads to a persistently rising price level, known as inflation.
Missing Word
inflation
Inflation is a sustained increase in the overall price level. Once output reaches potential GDP, further increases in aggregate demand mainly raise prices rather than real output.
Category: Limits of Fiscal Policy
Question 13
The idea that government should lean against the wind, spending more when times are hard and saving when times are good, comes from Keynesian economics.
Missing Word
Keynesian
Keynesian economics, named for John Maynard Keynes, holds that government should act countercyclically to offset swings in aggregate demand. This view is a main reason many economists oppose a strict annual balanced budget.
Category: Balanced Budget Debate
Question 14
A rule written into the Constitution that forced the federal government to match spending to tax revenue every year would require an amendment approved by two-thirds of both houses of Congress and ratified by three-quarters of the states.
Missing Word
amendment
A constitutional amendment is a formal change to the U.S. Constitution, and it needs supermajority approval in Congress and ratification by the states. A balanced budget amendment proposed in 1995 passed the House but failed in the Senate by one vote.
Category: Balanced Budget Debate
Question 15
Government borrowing can pay for long-term public investments in physical capital such as roads, bridges, and water systems, known as infrastructure.
Missing Word
infrastructure
Infrastructure is the basic physical capital an economy relies on, such as transportation and water systems. Borrowing to build it can raise future productivity, which is one reason a deficit is not always unwise.
Category: Balanced Budget Debate