government programs—like Social Security, Medicare, unemployment insurance, and food stamps—intended to protect families against economic hardship.

government debt held by individuals and institutions outside the government.

fiscal policy that reduces aggregate demand by decreasing government purchases, increasing taxes, or decreasing transfers.

taxes that don’t depend on the taxpayer’s income.

government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands. Taxes that depend on disposable income are the most important example of automatic stabilizers.

an estimate of what the budget balance would be if real GDP were exactly equal to potential output.

the time period used for much of government accounting; the U.S. fiscal year runs from October 1 to September 30. Fiscal years are labeled by the calendar year in which they end.

fiscal policy that is the direct result of deliberate actions by policy makers rather than rules.

spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics. In the United States, the largest implicit liabilities arise from Social Security and Medicare, which promise transfer payments to current and future retirees (Social Security) and to the elderly (Medicare).

government debt as a percentage of GDP, frequently used as a measure of a government’s ability to pay its debts.

fiscal policy that increases aggregate demand by increasing government purchases, decreasing taxes, or increasing transfers.