public policy A law, rule, statute, or edict that expresses the government’s goals and provides for rewards and punishments to promote their attainment. (See page 416)
public good A good that (1) may be enjoyed by anyone if it is provided and (2) may not be denied to anyone once it has been provided. (See page 420)
externalities The differences between the private cost and the social cost of economic behavior. (See page 420)
monopoly The existence in a market of a single firm that provides all the goods and services of that market; the absence of competition. (See page 421)
gross domestic product (GDP) The total value of goods and services produced within a country. (See page 423)
categorical grant-in-aid A grant by Congress to states and localities given with the condition that expenditures be limited to a problem or group specified by the national government. (See page 424)
monetary policy (technique) Policies that control the supply of money, the price of money (interest rate), and the availability of credit. (See page 425)
Federal Reserve System Consisting of 12 Federal Reserve Banks, an agency that facilitates exchanges of cash, checks, and credit; it regulates member banks; and it uses monetary policies to fight inflation and deflation. (See page 425)
discount rate The interest rate charged by the Federal Reserve when commercial banks borrow in order to expand their lending operations; an effective tool of monetary policy. (See page 425)
reserve requirement The amount of liquid assets and ready cash that the Federal Reserve requires banks to hold to meet depositors’ demands for their money. (See page 426)
open-market operations The process whereby the Open Market Committee of the Federal Reserve buys and sells government securities, etc., to help finance government operations and to reduce or increase the total amount of money circulating in the economy. (See page 426)
federal funds rate The interest rate on loans between banks that the Federal Reserve Board influences by affecting the supply of money available. (See page 426)
fiscal policy (technique) The government’s use of taxing, monetary, and spending powers to manipulate the economy. (See page 426)
progressive taxation Taxation that hits the upper income brackets more heavily. (See page 428)
regressive taxation Taxation that hits the lower income brackets more heavily. (See page 428)
budget deficit The amount by which government spending exceeds government revenue in a fiscal year. (See page 429)
mandatory spending Federal spending that is made up of “uncontrollables,” budget items that cannot be controlled through the regular budget process. (See page 432)
uncontrollable A budgetary item that is beyond the control of budgetary committees and can be controlled only by substantive legislative action in Congress. Some uncontrollables, such as the interest on the debt, are beyond the power of Congress because the terms of payments are set in contracts. (See page 432)
discretionary spending Federal spending on programs that are controlled through the regular budget process. (See page 432)
subsidy A government grant of cash or other valuable commodities, such as land, to an individual or an organization; used to promote activities desired by the government, to reward political support, or to buy off political opposition. (See page 434)
contracting power The power of government to set conditions on companies seeking to sell goods or services to government agencies. (See page 435)
contributory program A social program financed in whole or in part by taxation or other mandatory contributions by its present or future recipients. The most important example is Social Security, which is financed by a payroll tax. (See page 437)
Social Security A contributory welfare program into which working Americans contribute a percentage of their wages and from which they receive cash benefits after retirement. (See page 437)
indexing The process of periodically adjusting social benefits or wages to account for increases in the cost of living. (See page 439)
Medicare National health insurance for the elderly and for the disabled. (See page 440)
noncontributory program A social program that assists people based on demonstrated need rather than any contribution they have made. Also known as a public assistance program. (See page 440)
Aid to Families with Dependent Children (AFDC) Federal funds for children in families that fall below state standards of need. Congress abolished AFDC and replaced it with the Temporary Assistance to Needy Families (TANF) block grant. (See page 441)
means testing A procedure that determines eligibility for government public-assistance programs. A potential beneficiary must show a need and an inability to provide for that need. (See page 442)
Medicaid A federally financed, state-operated program providing medical services to low-income people. (See page 442)
Supplemental Security Income (SSI) A program providing a minimum monthly income to people who pass a “means test” and who are 65 or older, blind, or disabled. Financed from general revenues rather than from Social Security contributions. (See page 442)
food stamps The largest in-kind benefits program, administered by the Department of Agriculture, providing coupons to individuals and families who satisfy a means test. Food stamps can be exchanged for food at most grocery stores. (See page 442)
in-kind benefits Goods and services provided to needy individuals and families by the federal government. (See page 442)
entitlement The eligibility for benefits by virtue of a category of benefits defined by law. Categories can be changed only by legislation; deprivation of individual benefi ts can be determined only through due process in court. (See page 443)