PDGS
Partnership for Democratic Governance and Security

GLOSSARY



This glossary defines economic and budgetary terms as they relate to this report and for the general information of our readers. Some entries sacrifice precision for brevity and clarity to the lay reader. Where appropriate, sources of data for economic variables are indicated as follows:



• BEA denotes the Bureau of Economic Analysis in the Department of Commerce;



• BLS denotes the Bureau of Labor Statistics in the Department of Labor;



• CBO denotes the Congressional Budget Office;



• FRB denotes the Federal Reserve Board; and



• NBER denotes the National Bureau of Economic Research.



Adjusted gross income (AGI): All income subject to tax under the individual income tax after subtracting "above-the-line" deductions, such as certain contributions for individual retirement accounts and alimony payments. Taxable income is then derived by subtracting personal exemptions and the standard or itemized deductions from AGI.

Aggregate demand: Total purchases of a country's output of goods and services by consumers, businesses, government, and foreigners during a given period. (BEA) Compare domestic demand.

AGI: See adjusted gross income.

Appropriation act: A statute or legislation under the jurisdiction of the House and Senate Committees on Appropriations that provides budget authority. Enactment of an appropriation act generally follows adoption of an authorization. Currently, there are 13 regular appropriation acts each year; the Congress may also enact supplemental or continuing appropriations. See budget authority.

Authorization: A statute or legislation that establishes or continues a federal program or agency. An authorization is normally prerequisite to consideration and enactment of an appropriation act. For some programs, the authorization itself provides the authority to incur obligations and make payments.

Balanced Budget Act of 1997 (Public Law 105-33): This act carried out reconciliation instructions contained in the budget resolution for fiscal years 1998 through 2002. Title X amended the Deficit Control Act by setting discretionary spending caps for each fiscal year through 2002, extending pay-as-you-go procedures for all affected legislation enacted through 2002, and making corresponding extensions in the sequestration procedures. The act created separate discretionary spending caps for defense and nondefense spending through 1999 and a third cap for violent crime reduction spending through fiscal year 2000. In addition, title X amended the Congressional Budget Act of 1974 to make various conforming procedural changes. See reconciliation, discretionary spending caps, and pay-as-you-go.

Balanced Budget and Emergency Deficit Control Act of 1985 (Public Law 99-177): Referred to in this report as the Deficit Control Act, the act was originally known as Gramm-Rudman-Hollings. The act set forth specific deficit targets and a sequestration procedure to reduce spending if those targets were exceeded. The act also amended the Congressional Budget Act of 1974 to make significant changes in Congressional budget procedures. The Deficit Control Act has been amended and extended several times--most significantly by the Budget Enforcement Act of 1990 and most recently by the Omnibus Budget Reconciliation Act of 1993 and the Balanced Budget Act of 1997. See discretionary spending caps and pay-as-you-go.

Baseline: A benchmark for measuring the budgetary effects of proposed changes in federal revenues or spending. As specified in section 257 of the Deficit Control Act, the baseline for revenues and direct spending generally assumes that laws now in effect will continue. The baseline projections for discretionary spending reflect the discretionary spending caps set forth in that act for each fiscal year through 2002 and then grow at the rate of inflation thereafter. See revenues, direct spending, and discretionary spending.

Basis point: A hundredth of a percentage point. For example, the difference between interest rates of 10.5 percent and 10.0 percent is 50 basis points.

Blue Chip consensus forecast: The average of about 50 economic forecasts surveyed by Capitol Publications, Inc.

Budget authority: Legal authority to incur financial obligations that will result in outlays of federal government funds. Budget authority may be provided in an authorization or an appropriation act. Offsetting collections, including offsetting receipts, constitute negative budget authority. See authorization, appropriation act, and offsetting receipts.

Budget Enforcement Act of 1990 (Public Law 101-508): Title XIII of the Omnibus Budget Reconciliation Act of 1990. This act amended the Deficit Control Act to revise and extend the deficit targets through fiscal year 1995, to establish discretionary spending caps and pay-as-you-go procedures through fiscal year 1995, to conform sequestration procedures to the caps and pay-as-you-go, and to establish credit reform. This act also amended the Congressional Budget Act of 1974 to make significant changes in Congressional budget procedures. See discretionary spending caps, pay-as-you-go, and credit reform.

Budget function: One of 20 broad categories into which federal spending and credit activities that serve similar objectives are grouped. National needs are grouped into 17 broad budget functions, including national defense, international affairs, energy, agriculture, health, income security, and general government. Three other functions--net interest, allowances, and undistributed offsetting receipts--are included to complete the budget.

Budget resolution: A concurrent resolution, adopted by both Houses of Congress, that sets forth a Congressional budget plan for at least five years. The plan consists of spending and revenue targets and is implemented through subsequent legislation, including appropriation acts and changes in laws that affect revenues and direct spending. Such changes may be in response to reconciliation instructions included in the budget resolution. The targets established in the budget resolution are enforced through Congressional procedural mechanisms set out in the Congressional Budget Act of 1974. See appropriation act, direct spending, and reconciliation.

Budgetary resources: All sources of budget authority that are subject to sequestration. Budgetary resources include new budget authority, unobligated balances, direct spending authority, and obligation limitations. See budget authority and sequestration.

Business cycle: Fluctuations in overall business activity accompanied by swings in the unemployment rate, interest rates, and profits. Over a business cycle, real activity rises to a peak (its highest level during the cycle), then falls until it reaches its trough (its lowest level following the peak), whereupon it starts to rise again, defining a new cycle. Business cycles are irregular, varying in frequency, magnitude, and duration. (NBER)

Capacity utilization rate: The seasonally adjusted output of the nation's factories, mines, and electric and gas utilities expressed as a percentage of their capacity to produce output. The capacity of a facility is the greatest output it can maintain with a normal work pattern. (FRB)

Capital: Physical capital is the stock of products set aside to support future production and consumption. In the national income and product accounts, private capital consists of business inventories, producers' durable equipment, and residential and nonresidential structures. Financial capital is funds raised by governments, individuals, or businesses by incurring liabilities such as bonds, mortgages, or stock certificates. Human capital is the education, training, work experience, and other attributes that enhance the ability of the labor force to produce goods and services. Bank capital is the sum advanced and put at risk by the owners of a bank; it represents the first "cushion" in the event of loss, thereby decreasing the willingness of the owners to take risks in lending. See consumption and national income and product accounts.

Central bank: A government-established agency responsible for conducting monetary policy and overseeing credit conditions. The Federal Reserve System fulfills those functions in the United States. See Federal Reserve System and monetary policy.

Civilian unemployment rate: Unemployment as a percentage of the civilian labor force--that is, the labor force excluding armed forces personnel. (BLS) See unemployment.

Compensation: All income due to employees for their work during a given period. In addition to wages, salaries, bonuses, and stock options, compensation includes fringe benefits and the employer's share of social insurance contributions. (BEA)

Consumer confidence: An index of consumers' attitudes and buying plans. One such index is constructed by the University of Michigan Survey Research Center based on surveys of consumers' views of the state of the economy and of their personal finances, both current and prospective.

Consumer price index (CPI): The consumer price index, a measure of the change in the cost of living, commonly used as a measure of inflation. There are two official CPIs, the CPI-U and the CPI-W. The CPI-U is an index of consumer prices based on the typical market basket of goods and services consumed by all urban consumers during a base period. The CPI-W is an index of consumer prices based on the typical market basket of goods and services consumed by urban wage earners and clerical workers during a base period. (BLS)

Consumption: Total purchases of goods and services during a given period by households for their own use. (BEA)

CPI: See consumer price index.

Credit crunch: A sudden reduction in the availability of credit from banks and capital markets at given interest rates on bank loans and other credit instruments. The reduced availability can result from many factors, including an increased perception of risk to lenders, an imposition of credit controls, or a sharp restriction of the money supply.

Credit reform: A revised system of budgeting for federal credit activities that focuses on the cost of subsidies conveyed in federal credit assistance. The system was authorized by the Federal Credit Reform Act of 1990, which was part of the Budget Enforcement Act of 1990. See credit subsidy.

Credit subsidy: The estimated long-term cost to the federal government of a direct loan or a loan guarantee calculated on the basis of net present value, excluding federal administrative costs and any incidental effects on governmental receipts or outlays. For direct loans, the subsidy cost is the net present value of loan disbursements minus repayments of interest and principal, adjusted for estimated defaults, prepayments, fees, penalties, and other recoveries. For loan guarantees, the subsidy cost is the net present value of the estimated payments by the government to cover defaults and delinquencies, interest subsidies, or other payments, offset by any payments to the government, including origination and other fees, penalties, and recoveries. See present value.

Currency value: See exchange rate.

Current-account balance: The net revenues that arise from a country's international sales and purchases of goods and services plus net international transfers (public or private gifts or donations) and net factor income (primarily capital income from foreign-located property owned by residents minus capital income from domestic property owned by nonresidents). The current-account balance differs from net exports in that it includes international transfers and net factor income. (BEA) See net exports.

Current dollar: A measure of spending or revenue in a given year that has not been adjusted for differences in prices between that year and a base year. See real.

Cyclical deficit: The part of the budget deficit that results from cyclical factors rather than from underlying fiscal policy. The cyclical deficit reflects the fact that when gross domestic product (GDP) falls, revenues automatically fall and outlays automatically rise. By definition, the cyclical deficit is zero when the economy is operating at potential GDP and the unemployment rate equals the nonaccelerating inflation rate of unemployment, or NAIRU. See deficit, fiscal policy, and NAIRU; compare with standardized-employment deficit. (CBO)

Debt: Total debt issued by the federal government is referred to as federal debt or gross debt. Federal debt has two components: debt held by the public (federal debt held by nonfederal investors, including the Federal Reserve System) and debt held by government accounts (federal debt held by federal government trust funds, deposit insurance funds, and other federal accounts). Debt subject to limit is federal debt that is subject to a statutory limit on its issuance. The current limit applies to almost all gross debt, except a small portion of the debt issued by the Department of the Treasury and the small amount of debt issued by other federal agencies (primarily the Tennessee Valley Authority and the Postal Service).

Bebt service: Payment of scheduled interest obligations on outstanding debt.

Deficit: The amount by which outlays exceed revenues in a given period, typically a fiscal year. A negative deficit is equivalent to a surplus. See surplus.

Deficit Control Act: See Balanced Budget and Emergency Deficit Control Act of 1985.

Deflator: See implicit deflator.

Deposit insurance: The guarantee by a federal agency that an individual depositor at a participating depository institution will receive the full amount of the deposit (up to $100,000) if the institution becomes insolvent.

Depreciation: Decline in the value of a currency, financial asset, or capital good. When applied to a capital good, depreciation usually refers to loss of value because of obsolescence or wear.

Devaluation: The fall in the value of a currency that occurs when the government declares that its domestic currency will buy fewer units of a foreign currency. Such a policy involves government intervention to peg its currency (that is, fix its exchange rate). Many governments peg their domestic currencies to a stable currency, such as the U.S. dollar or the German mark. See exchange rate and depreciation.

Direct spending: Another term for mandatory spending. As defined in the Deficit Control Act, as amended, direct spending comprises entitlements, the Food Stamp program, and budget authority provided by laws other than annual appropriation acts. See entitlement, budget authority, and appropriation act; compare with discretionary spending.

Discount rate: The interest rate the Federal Reserve System charges on a loan that it makes to a bank. Such loans, when allowed, enable a bank to meet its reserve requirements without reducing its loans.

Discouraged workers: Jobless people who are available for work but who are not actively seeking it because they think they have poor prospects of finding jobs. Discouraged workers are not counted as part of the labor force or as being unemployed. (BLS) See also unemployment.

Discretionary spending: Spending for programs whose funding levels are determined and controlled in annual appropriation acts. See appropriation act; compare with direct spending.

Discretionary spending caps: Ceilings imposed in each fiscal year through 2002 on budget authority and outlays for programs whose funding levels are determined and controlled in annual appropriation acts. Established in the Budget Enforcement Act of 1990, the ceilings were further amended in the Balanced Budget Act of 1997 to set separate caps on defense and nondefense spending through fiscal year 1999 and on violent crime reduction spending through 2000. (For a list of discretionary programs, see U.S. House of Representatives, Balanced Budget Act of 1997, conference report to accompany H.R. 2015, Report 105-217 (July 30, 1997), p. 1019.) See discretionary spending and sequestration.

Disposable personal income: Income received by individuals, including transfer payments, minus personal taxes and fees paid to government. (BEA)

Domestic demand: Total purchases of goods and services, regardless of origin, by U.S. consumers, businesses, and governments during a given period. Domestic demand equals gross domestic product minus net exports. (BEA) See gross domestic product and net exports; compare aggregate demand.

ECI: See employment cost index.

Economic profits: Profits of corporations, adjusted to remove the distortions in depreciation allowances caused by tax rules and to exclude capital gains on inventories. Economic profits represent a better measure of profits from current production than the book profits reported by corporations. (BEA)

Employment cost index (ECI): An index of the cost of an hour of labor--comprising the cost to the employer for wage or salary payments, employee benefits, and contributions for social insurance. The ECI is unaffected by changes in the mix of occupations and of employment by industry. (BLS)

Entitlements: Programs that create a legal obligation on the federal government to make payments to any person, business, or unit of government that meets the criteria set in law. The Congress controls those programs by setting eligibility criteria and the benefit or payment rules, not by providing a specific level of funding. Although the level of spending for entitlements is determined by the number of beneficiaries who meet the eligibility criteria, funding may be provided in either the authorization or an appropriation act. The best-known entitlements are the major benefit programs, such as Social Security and Medicare. See authorization and direct spending.

European Monetary Union (EMU): A currency union consisting of most of the members of the European Union, who in January 1999 aligned their monetary policies under a European Central Bank and adopted a common currency, the euro.

Exchange rate: The number of units of a foreign currency that can be bought with one unit of the domestic currency. (FRB)

Excise tax: A tax levied on the purchase of a specific type of good or service, such as tobacco products or telephone services.

Expansion: A phase of the business cycle that extends from a trough to the next peak. See business cycle. (NBER)

Federal funds: All funds that compose the federal budget except those classified by law as trust funds. See trust fund.

Federal funds rate: Overnight interest rate at which financial institutions borrow and lend monetary reserves. A rise in the federal funds rate (compared with other short-term rates) suggests a tightening of monetary policy, whereas a fall suggests an easing. (FRB)

Federal Open Market Committee (FOMC): The group within the Federal Reserve System that determines the direction of monetary policy. The open market desk at the Federal Reserve Bank of New York implements the policy with open market operations--the purchase or sale of government securities--which influence short-term interest rates and the growth of the money supply. The FOMC is composed of 12 members, including the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and a rotating group of four of the other 11 presidents of the regional Federal Reserve Banks. See Federal Reserve System and monetary policy.

Federal Reserve System: As the central bank of the United States, the Federal Reserve is responsible for conducting the nation's monetary policy and overseeing credit conditions. See monetary policy.

Financing account: An account established under credit reform to handle the cash transactions of federal direct loans and loan guarantees. Under credit reform, only the subsidy cost of direct loans or loan guarantees appears in the budget. The transactions reflected in the financing accounts are considered a means of financing the deficit and, as such, are extrabudgetary. See credit subsidy and means of financing.

Fiscal policy: The government's choice of tax and spending programs, which influences the amount and maturity of government debt as well as the level, composition, and distribution of national output and income. An "easy" fiscal policy stimulates the short-term growth of output and income, whereas a "tight" fiscal policy restrains their growth. Movements in the standardized-employment deficit constitute one overall indicator of the tightness or ease of federal fiscal policy; an increase relative to potential gross domestic product suggests fiscal ease, whereas a decrease suggests fiscal restriction. The President and the Congress jointly determine federal fiscal policy. See standardized-employment deficit.

Fiscal year: A yearly accounting period. The federal government's fiscal year begins October 1 and ends September 30. Fiscal years are designated by the calendar years in which they end--for example, fiscal year 1998 began October 1, 1997, and will end on September 30, 1998.

GDI: See gross domestic income.

GDP: See gross domestic product.

GDP gap: The difference between potential real GDP and actual real GDP, expressed as a percentage of potential real GDP. See potential real GDP and real.

GNP: See gross national product.

Government-sponsored enterprises: Financial institutions established and chartered by the federal government that are privately owned and that facilitate the flow of funds to selected lending markets, such as residential mortgages and agricultural credit. Major examples are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Banks.

Grants: Transfer payments from the federal government to state and local governments or other recipients to help fund projects or activities that do not involve substantial federal participation.

Grants-in-aid: Grants from the federal government to state and local governments to help provide for programs of assistance or service to the public.

Gross debt: Total debt issued by the federal government. See debt.

Gross domestic income (GDI): The sum of all income earned in the domestic production of goods and services. (BEA)

Gross domestic product (GDP): The total market value of goods and services produced domestically during a given period. The components of GDP are consumption, gross investment, government purchases of goods and services, and net exports. (BEA) See consumption, gross investment, and net exports.

Gross investment: A measure of additions to the capital stock that does not subtract depreciation of existing capital.

Gross national product (GNP): The total market value of goods and services produced in a given period by labor and capital supplied by residents of a country, regardless of where the labor and capital are located. GNP differs from GDP primarily by including the capital income that residents earn from investments abroad and excluding the capital income that nonresidents earn from domestic investment.

Hedge fund: An unregulated private investment pool that holds financial assets. To remain unregulated, hedge funds must limit their membership to small numbers of wealthy individuals and institutions. Institutional members of some hedge funds have included commercial banks. Unlike pension and mutual funds, hedge funds finance some investment from borrowing, a practice that increases the risk of their financial positions. Hedge funds may also follow complex investment strategies, especially by trading in financial derivatives--assets whose value derives from the performance of an index of more elementary assets, such as stocks or bonds of individual companies or organizations.

Implicit deflator: A measure of price for the whole economy or for a category of spending given by the ratio of current-dollar spending to real spending. See real and current dollar. (BEA)

Inflation: Growth in a measure of the general price level, usually expressed as an annual rate of change.

Infrastructure: Government-owned capital goods that provide services to the public, usually with benefits to the community at large as well as to the direct user. Examples include schools, roads, bridges, dams, harbors, and public buildings.

Inventories: Stocks of goods held by businesses either for further processing or for sale. (BEA)

Investment: Physical investment is the current product set aside during a given period to be used for future production-in other words, an addition to the stock of capital goods. As measured by the national income and product accounts, private domestic investment consists of investment in residential and nonresidential structures, producers' durable equipment, and the change in business inventories. Financial investment is the purchase of a financial security. Investment in human capital is spending on education, training, health services, and other activities that increase the productivity of the workforce. Investment in human capital is not treated as investment by the national income and product accounts. See national income and product accounts and inventories.

Labor force: The number of people who have jobs or who are available for work and are actively seeking jobs. The labor force participation rate is the labor force as a percentage of the noninstitutional population age 16 or older. (BLS)

Liquidating account: Any budgetary account established under credit reform to finance direct loan and loan guarantee activities that were obligated or committed before October 1, 1992 (the effective date of credit reform). See credit reform.

Liquidity: The ease with which an asset can be sold for cash. An asset is highly liquid if it comes in standard units that are traded daily in large amounts by many buyers and sellers. Among the most liquid of assets are U.S. Treasury securities.

Long-term interest rate: The interest rate earned by a note or bond that matures in 10 or more years.

Mandatory spending: Another term for direct spending.

Marginal tax rate: The tax rate that applies to an additional dollar of income.

Means of financing: Means by which a budget deficit is financed or a surplus is disposed of. Means of financing are not included in the budget totals. The primary means of financing is borrowing from the public. In general, the cumulative amount borrowed from the public (debt held by the public) will increase if there is a deficit and decrease if there is a surplus, although other factors can affect the amount that the government must borrow. Those other factors, known as other means of financing, include reductions (or increases) in the government's cash balances, seigniorage, changes in checks outstanding, changes in accrued interest costs included in the budget but not yet paid, and cash flows reflected in credit financing accounts. See deficit, surplus, and debt.

Means-tested programs: Programs that provide cash or services to people who meet a test of need based on income and assets. Most means-tested programs are entitlements (such as Medicaid, the Food Stamp program, Supplemental Security Income, family support, and veterans' pensions), but a few (such as subsidized housing and various social services) are funded through discretionary appropriations. See entitlements and discretionary spending.

Monetary policy: The strategy of influencing movements of the money supply and interest rates to affect output and inflation. An "easy" monetary policy suggests faster money growth and initially lower short-term interest rates in an attempt to increase aggregate demand, but it may lead to a higher rate of inflation. A "tight" monetary policy suggests slower money growth and higher interest rates in the near term in an attempt to reduce inflationary pressure by reducing aggregate demand. The Federal Reserve System conducts monetary policy in the United States. See money supply and aggregate demand.

Money supply: Private assets that can readily be used to make transactions or are easily convertible into assets that can.

NAIRU (nonaccelerating inflation rate of unemployment): The unemployment rate consistent with a constant inflation rate. An unemployment rate higher than the NAIRU indicates downward pressure on inflation, whereas an unemployment rate lower than the NAIRU indicates upward pressure on inflation. Estimates of the NAIRU are based on the historical relationship between inflation and the unemployment rate. CBO's procedures for estimating the NAIRU are described in Appendix B of The Economic and Budget Outlook: An Update (August 1994). See inflation and unemployment.

National income and product accounts (NIPAs): Official U.S. accounts that track the level and composition of GDP and how the costs of production are distributed as income. (BEA)

National saving: Total saving by all sectors of the economy: personal saving, business saving (corporate after-tax profits not paid as dividends), and government saving (the budget surplus or deficit--indicating dissaving--of all government entities). National saving represents all income not consumed, publicly or privately, during a given period. (BEA)

Net exports: Exports of goods and services produced in a country minus its imports of goods and services produced elsewhere.

Net interest: In the federal budget, net interest includes federal interest payments to the public as recorded in budget function 900. Net interest also includes, as an offset, interest income received by the government on loans and cash balances. In the national income and product accounts (NIPAs), net interest is the income component of GDP paid as interest-primarily interest that domestic businesses pay minus interest they receive. The NIPAs include government interest payments in personal income, but such payments are not part of GDP. See national income and product accounts.

Net national saving: National saving minus depreciation of physical capital. See depreciation and capital.

NIPAs: See national income and product accounts.

Nominal: A measure based on current-dollar value. For income or spending, the nominal level is measured in current dollars. For an interest rate, the nominal rate on debt selling at par is the current-dollar interest paid in any year as a ratio of the current-dollar value of the debt when it was issued. For debt initially issued or now selling at a discount, the nominal rate includes as a payment the estimated yearly equivalent of the difference between the redemption price and the discounted price. For an exchange rate, the nominal rate is the rate at which one nominal unit of currency trades for another. See current dollar; compare with real.

Off-budget: Spending or revenues excluded from the budget totals by law. The revenues and outlays of the two Social Security trust funds and the transactions of the Postal Service are off-budget and (except for the administrative costs of Social Security, which are discretionary) are not included in the budget resolution or in any calculations necessary under the Deficit Control Act. See budget resolution and Balanced Budget and Emergency Deficit Control Act of 1985.

Offsetting receipts: Funds collected by the federal government that are recorded as negative budget authority and outlays and credited to separate receipt accounts. More than half of offsetting receipts are intragovernmental receipts that reflect agencies' payments to retirement and other funds on behalf of their employees; those receipts simply balance payments elsewhere in the budget. Proprietary receipts are offsetting receipts that come to the federal government from the public, generally as a result of voluntary, business-type transactions. Examples of proprietary receipts are premiums for Supplementary Medical Insurance (Part B of Medicare), receipts from timber and oil leases, and proceeds from the sale of electric power. See budget authority and receipt account; compare with revenues.

Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66): This act carried out the reconciliation instructions contained in the budget resolution for fiscal years 1994 through 1998. Title XIV of the act amended the Deficit Control Act by extending the discretionary spending caps, pay-as-you-go procedures, and sequestration procedures through fiscal year 1998. The act did not extend deficit targets beyond fiscal year 1995. See reconciliation, discretionary spending caps, and pay-as-you-go.

Other means of financing: See means of financing.

Outlays: Expenditures made to fulfill a federal obligation, generally by issuing a check or disbursing cash. Offsetting collections, including offsetting receipts, constitute negative outlays. Outlays may pay for obligations incurred in previous fiscal years or in the current year. Outlays, therefore, flow in part from unexpended balances of prior-year budget authority and in part from budget authority provided for the current year. Unlike outlays for other categories of spending, outlays for interest on the public debt are counted when the interest is earned, not when it is paid. Also, outlays for direct loans and loan guarantees made since fiscal year 1992 reflect the estimated subsidy costs instead of cash transactions.

Pay-as-you-go (PAYGO): A procedure that tracks the five-year budgetary effects of all enacted legislation affecting direct spending or receipts and that triggers a sequestration if the legislation would increase the deficit or reduce the surplus in a fiscal year. The procedure was established in the Budget Enforcement Act of 1990 and was extended in the Balanced Budget Act of 1997 for laws enacted through fiscal year 2002. See direct spending, sequestration, deficit, and surplus.

Peak: See business cycle.

Personal saving: Saving by households. Personal saving equals disposable personal income minus spending for consumption and interest payments. The personal saving rate is personal saving as a percentage of disposable personal income. (BEA) See disposable personal income.

Potential labor force: The labor force adjusted for movements in the business cycle. See labor force and business cycle.

Potential real GDP: The highest level of real gross domestic product that could persist for a substantial period without raising the rate of inflation. CBO calculates potential real GDP by relating it to the nonaccelerating inflation rate of unemployment, a rate that is consistent with a constant inflation rate. (CBO) See real and NAIRU.

Present value: A single number that expresses a flow of current and future income (or payments) in terms of an equivalent lump sum received (or paid) today. The calculation of present value depends on the rate of interest. For example, given an interest rate of 5 percent, 95 cents today will grow to $1 next year. Hence, the present value of $1 payable a year from today is only 95 cents.

Private saving: Saving by households and businesses. Private saving is equal to personal saving plus after-tax corporate profits minus dividends paid. (BEA)

Productivity: Average real output per unit of input. Labor productivity is average real output per hour of labor. The growth of labor productivity is defined as the growth of real output that is not explained by the growth of labor input alone. Total factor productivity is average real output per unit of combined labor and capital inputs. The growth of total factor productivity is defined as the growth of real output that is not explained by the growth of labor and capital. Labor productivity and total factor productivity differ in that increases in capital per worker raise labor productivity but not total factor productivity. (BLS)

Program account: Any budgetary account that finances credit subsidies and the costs of administering credit programs. See credit subsidy.

Real: Adjusted to remove the effects of inflation. Real output represents the quantity, rather than the dollar value, of goods and services produced. Real income represents the power to purchase real output. Real data at the finest level of disaggregation are constructed by dividing the corresponding nominal data, such as spending or wage rates, by a price index. Real aggregates, such as real GDP, are constructed by a procedure that allows the real growth of the aggregate to reflect the real growth of its components, appropriately weighted by the importance of the components. A real interest rate is a nominal interest rate adjusted for expected inflation; it is often approximated by subtracting an estimate of the expected inflation rate from the nominal interest rate. Compare with nominal and current dollar.

Receipt account: Any account that is established exclusively to record the collection of income, including negative subsidies. In general, receipt accounts that collect money arising from the exercise of the government's sovereign powers are included as revenues, whereas the proceeds of intragovernmental transactions or collections from the public arising from business-type transactions (such as interest income, proceeds from the sale of property or products, or profits from federal credit activities) are included as offsetting receipts--that is, credited as offsets to outlays rather than included in revenues. See revenues and offsetting receipts.

Recession: A phase of the business cycle extending from a peak to the next trough--usually lasting six months to a year-and characterized by widespread declines in output, income, employment, and trade in many sectors of the economy. Real GDP usually falls throughout a recession. (NBER) See business cycle.

Reconciliation: A special legislative procedure established under the Congressional Budget Act of 1974 by which the Congress changes existing laws that affect revenues or direct spending to conform to the revenue and spending targets established in the budget resolution. The budget resolution may contain reconciliation instructions, which direct Congressional committees to make changes in revenue or direct spending programs under their jurisdiction to achieve a specified budgetary result. The legislation to implement the instructions is usually combined into one comprehensive reconciliation bill.

Reconciliation affects revenues, direct spending, and offsetting receipts, but usually not discretionary spending. See budget resolution, revenues, direct spending, and discretionary spending.

Recovery: A phase of the business cycle that lasts from a trough until overall economic activity returns to the level it reached at the previous peak. (NBER) See business cycle.

Revenues: Funds collected from the public arising from the sovereign power of the government. Federal revenues consist of receipts from income taxes (individual and corporate), excise taxes, and estate and gift taxes; social insurance contributions; customs duties; fees and fines; and miscellaneous receipts, such as Federal Reserve earnings, gifts, and contributions. Federal revenues are also known as federal governmental receipts but do not include offsetting receipts, which are recorded as negative budget authority and outlays. Compare with offsetting receipts.

Risk premium: The additional return that investors require to hold an asset whose perceived return is riskier than that of a hypothetically safe asset. The risk can arise from many sources--such as the possibility of default (in the case of corporate or municipal debt) or the volatility of earnings (in the case of corporate equities).

S corporation: A domestically owned corporation with no more than 75 owners who have all elected to pay taxes under Subchapter S of the Internal Revenue Code. S corporations are treated like partnerships. That is, they are exempt from the corporate income tax, but the owners pay income taxes on all of the firm's income, even if some of the earnings are retained by the firm.

Saving rate: See personal saving.

Seigniorage: The gain to the government from the difference between the face value of minted coins put into circulation and the cost of producing them (including the cost of the metal used in the coins). Seigniorage is considered a means of financing and is not included in the budget totals. See means of financing.

Sequestration: The cancellation of budgetary resources to enforce the discretionary spending caps and pay-as-you-go procedures established in the Budget Enforcement Act of 1990 and most recently extended by the Balanced Budget Act of 1997. Sequestration is triggered if the Office of Management and Budget determines that enacted discretionary appropriations exceed the discretionary spending caps or that enacted legislation affecting direct spending and receipts increases the deficit or reduces the surplus. Changes in direct spending and receipts that increase the deficit or reduce the surplus would result in reductions in direct spending not otherwise exempted by law. Discretionary spending in excess of the caps would cause the cancellation of budgetary resources within the discretionary spending category. See discretionary spending caps and pay-as-you-go.

Short-term interest rat: The interest rate earned by a debt instrument (such as a Treasury bill) that will mature within one year.

standardized-employment deficit: The level of the federal budget deficit that would occur under current law if the economy operated at potential GDP. The standardized-employment deficit provides a measure of underlying fiscal policy by removing the influence of cyclical factors from the budget deficit. (CBO) Compare with cyclical deficit.

Structural deficit: Same as standardized-employment deficit.

Subchapter S corporation: See S corporation.

Subsidy cost: See credit subsidy.

Surplus: The amount by which revenues exceed outlays in a given period, typically a fiscal year. A negative surplus is equivalent to a deficit. See deficit.

10-year Treasury note: An interest-bearing note issued by the U.S. Treasury that is to be redeemed in 10 years.

Three-month Treasury bill: An interest-bearing security issued by the U.S. Treasury that is to be redeemed in 91 days.

Thrift institutions: Savings and loan institutions and mutual savings banks.

Total factor productivity: See productivity.

Transfer payments: Payments in return for which no good or service is currently received, such as welfare or Social Security payments or money sent to relatives abroad. (BEA)

Trough: See business cycle.

Trust fund: A fund, designated as a trust fund by law, that is credited with income from earmarked collections and charged with certain outlays. Collections may come from the public (for example, from taxes or user charges) or from intrabudgetary transfers. The federal government has more than 150 trust funds. The largest and best known finance major benefit programs (including Social Security and Medicare) and infrastructure spending (the Highway and the Airport and Airway Trust Funds). See federal funds.

Underlying rate of inflation: The rate of inflation of a modified consumer price index for all urban consumers that excludes from the market basket the components most volatile in price: food, energy, and used cars. See consumer price index.

Unemployment: Joblessness. The measure of unemployment is the number of jobless people who are available for work and are actively seeking jobs. The unemployment rate is unemployment as a percentage of the labor force. (BLS) See also discouraged workers.

Unemployment gap: The difference between the nonaccelerating inflation rate of unemployment (NAIRU) and the unemployment rate. See NAIRU.

Yield: The average annual rate of return on a security, including interest payments and repayment of principal, if it is held to maturity.

Yield curve: The relationship formed by plotting the yields of otherwise comparable fixed-income securities against their terms of maturity. Typically, yields increase as maturities lengthen. The rate of that increase determines the "steepness" or "flatness" of the yield curve. Ordinarily, a steepening (or flattening) of the yield curve is taken to suggest that short-term interest rates are expected to rise (or fall).