- The change in Expenditures or Tax Revenue of the Federal Government
- Can either increase or decrease Taxes or Spending
Type of Budget
- Balanced Budget=Revenue = Expenditures
- Deficit= Revenue < Expenditures
- When in Deficit, Government borrows from:
- Individuals
- Corporations
- Financial Institutions
- Foreign Entities and Countries
- Surplus= Revenue > Expenditures
- Government Debt= Sum of Deficits- Sum of Surplus
- Discretionary (Action)-
- Expansionary
- Combats Recession
- Increase Spending; Decrease Taxes
- Contractionary
- Combats Inflation
- Decrease Spending; Increase Taxes
- Increase/ Decrease Government Spending or Taxes to get back Fiscal Policy
- Non Discretionary
- Automatic/ Built-in Stabilizers- Include Unemployment Compensation and Marginal Taxes; They happen without Policy Makers
Tax Systems
- Progressive- Average Tax Rates rises with GDP
- Proportional- Average Tax Rates remains constant as GDP Changes
- Regressive- Average Tax Rates falls with GDP
- More Progressive- More Stability
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