Glossary: M03 — Fiscal Policy

Term	Definition
Fiscal policy	Government decisions about taxation and spending to influence the economy
Monetary policy	Central bank activities to influence the quantity of money and credit
Government deficit	Government expenditures exceed revenues over a period
Structural budget deficit	Deficit that would exist if economy were at full employment
Transfer payments	Government payments to individuals (e.g., unemployment benefits, pensions)
Crowding out	Government borrowing raises interest rates, reducing private investment
Ricardian equivalence	Theory that government borrowing is offset by increased private saving
Expansionary fiscal policy	↑Government spending or ↓taxes to stimulate AD
Contractionary fiscal policy	↓Government spending or ↑taxes to reduce AD
Recognition lag	Delay in identifying current economic conditions
Action lag	Delay in implementing policy changes
Impact lag	Delay between policy implementation and its economic effect
Cyclically adjusted budget deficit	Budget deficit adjusted for the effects of the business cycle
Automatic stabilizers	Tax and spending provisions that automatically counter business cycle
Fiscal multiplier	Ratio of change in GDP to change in government spending