For a comprehensive list of budget terms, see GAO Glossary of Terms Used in the Federal Budget Process.


Following is list of frequently used terms from the following sources:  Bureau of Labor Statistics (BLS); Congressional Budget Office (CBO); Congressional Research Service (CRS); Government Accountability Office (GAO); Washington Budget Report (WBR). and Federal Reserve Board (FRB).


Alternative Minimum Tax (AMT): A tax intended to limit the extent to which higher-income people can reduce their tax liability (the amount they owe) through the use of preferences in the tax code. Taxpayers subject to the AMT are required to recalculate their tax liability on the basis of a more limited set of exemptions, deductions, and tax credits than would normally apply. The amount by which a taxpayer’s AMT calculation exceeds his or her regular tax calculation is that person’s AMT liability. (CBO)


Baseline: A benchmark for measuring the budgetary effects of proposed changes in federal revenues or spending. The baseline is the projection of current-year levels of spending and revenues into future years, assuming the continuation of current laws and policies, and adjusting for inflation and other factors. (WBR)

Basis point: One one-hundredth of a percentage point. (For example, the difference between interest rates of 5.5 percent and 5.0 percent is 50 basis points.) (CBO)

Blue Chip consensus forecast: The average of approximately 50 private-sector economic forecasts compiled and published monthly by Aspen Publishers, Inc.

Budget Authority vs. Outlays:  “Budget authority,” (usually referred to as “BA”) is legal authority Congress gives to a Federal department or agency to enter into obligations that will result in outlays. When Congress appropriates funds for a particular program, it is enacting BA—not outlays. By contrast, “outlays” are simply disbursements by the Treasury.  When the Treasury issues a check in FY 2007, that disbursement is an FY 2007 outlay.

Business fixed investment: Spending by businesses on structures, equipment, and software. Such investment is labeled “fixed” to distinguish it from investment in inventories. (CBO)


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. A facility’s capacity is the greatest output it can maintain with a normal work pattern. (CBO)

Capital: Tangible and intangible resources that can be used or invested to produce a stream of benefits over time. Physical capital–also known as fixed capital or the capital stock–consists of land and the stock of products set aside to support future production and consumption, including business inventories and capital goods (residential and nonresidential structures and producers’ durable equipment). Human capital is the education, training, work experience, and other attributes that enhance the ability of the labor force to produce goods and services. The capital of a business is the sum advanced and put at risk by the business’s owners: for example, bank capital is the sum put at risk by the owners of a bank. In an accounting sense, capital is a firm’s net worth or equity–the difference between its assets and liabilities. Financial capital is wealth held in the form of financial instruments (stocks, bonds, mortgages, and so forth) rather than held directly in the form of physical capital. (CBO)

Capital gains and losses: The increase or decrease in the value of an asset that comes from the increase or decrease in the asset’s market price since it was purchased. A capital gain or loss is “realized” when the asset is sold. (CBO)

Capital income: Income derived from wealth, such as stock dividends, realized capital gains, or the owner’s profits from a business. (CBO)

Constant dollar: A measure of spending or revenues in a given year that has been adjusted for inflation between that year and a base year in order to compare inflation-adjusted expenditures over a period of time. By contrast, nominal dollars refer to actual dollars spent. (WBR)

Consumer confidence: An index of consumer optimism that is based on surveys of consumers’ attitudes about current and future economic conditions. One such measure, the index of consumer sentiment, is constructed by the University of Michigan’s Survey Research Center. The Conference Board constructs a similar measure, the consumer confidence index.

Consumer price index (CPI): An index of the cost of living commonly used to measure inflation. The Bureau of Labor Statistics publishes the CPI-U, an index of consumer prices based on the typical market basket of goods and services consumed by all urban consumers, and the CPI-W, an index of consumer prices based on the typical market basket of goods and services consumed by urban wage earners and clerical workers.

Core inflation: A measure of the rate of inflation that excludes changes in the prices of food and energy. (CBO)

Credit subsidy: The estimated long-term cost to the federal government of a direct loan or loan guarantee. 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 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.

Current-account balance: the nation’s most comprehensive measure of international transactions, reflecting exports and imports of goods and services, investment income (earnings and payments), and unilateral transfers. (CRS)

Current dollar: A measure of spending or revenues in a given year that has not been adjusted for differences in prices (such as inflation) between that year and a base year. Compare with constant dollar.

Cyclical deficit or surplus: The part of the federal budget deficit or surplus that results from the business cycle. The cyclical component reflects the way in which the deficit or surplus automatically increases or decreases during economic expansions or recessions. (CBO)

Cyclically adjusted budget deficit or surplus: The level of the federal budget deficit or surplus that would occur under current law if the influence of the business cycle was removed–that is, if the economy operated at potential gross domestic product. (CBO) See business cycle, deficit, potential GDP, and surplus; compare with cyclical deficit or surplus.


Debt and Deficits. A budget deficit (or surplus) is simply the difference between outlays and revenues for a given fiscal year. In contrast to an annual deficit, the Federal debt is the accumulated debt of the Federal government. Whenever the Federal government runs a budget deficit, the additional borrowing to finance that deficit adds to the Federal debt. By contrast, whenever the Federal government runs a budget surplus, as it did during Fiscal Years 1998 through 2001, the Federal debt decreased because the Treasury used the surplus to redeem some of the outstanding debt, rather than borrowing additional funds to redeem the debt (known as “rolling over the debt”). Federal law also contains a statutory limit on the Federal debt, commonly called the “debt ceiling.”  If the activities of the Federal government require a higher limit, Congress must enact a law to raise the debt ceiling. The President on September 29, 2007 signed into law an increase in the debt ceiling to $9.815 trillion. Note that the debt ceiling approximates Gross Federal debt—which includes: (1) Debt Held by the Public (money borrowed by selling Treasury securities in the capital markets to various buyers including foreign investors, mutual funds, state and local governments, commercial banks, insurance companies and individuals); and (2) debt held by Federal government accounts, such as the Social Security Trust Funds and various federal retirement trust funds. (The Social Security and other trust funds, by law, invest all of their surpluses in nonmarketable Treasury securities.)  While a lot of political attention is paid to the debt ceiling, many economists view Debt Held by the Public as more significant economically than Gross Federal Debt, because Debt Held by the Public reflects the total amount the Federal government is borrowing from the private credit markets—with the implications that has for interest rates and available credit.

Deflation: A drop in price levels that is so broadly based that general indexes of prices, such as the consumer price index, register continuing declines. Deflation is usually caused by a collapse in aggregate demand. (CBO)

Depreciation: A 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, wear, or destruction (as by fire or flood) and is also called consumption of fixed capital. Book depreciation (also known as tax depreciation) is the depreciation that the tax code allows businesses to deduct when they calculate their taxable profits. It typically occurs at a faster rate than economic depreciation, which is the actual decline in the value of an asset. (CBO)

Devaluation: The act of a government to lower the fixed exchange rate of its currency. The government implements a devaluation by announcing that it will no longer maintain the existing rate by buying and selling its currency at that rate. See exchange rate. (CBO)

Discount Rate: U.S. banks are obligated by law to maintain certain levels of “reserves,” typically 10% of the total value of the bank’s demand accounts. If a bank wants to issue a loan that would reduce reserves below the legally required minimum, it can add to its reserves by borrowing funds from another bank (see Federal Funds Rate) or by borrowing directly from the Fed. In the latter instance, the interest charged by the Fed is known as the “discount rate.”

Discouraged workers: Jobless people who are available for work but not actively seeking it because they think they have poor prospects of finding a job. Discouraged workers are not included in measures of the labor force or the unemployment rate. (BLS)

Discretionary spending: Federal spending determined by the annual appropriations process. Contrast with entitlements, the spending for which is determined by automatic spending formulas set forth in law. (WBR)

Disposable personal income: Personal income–the income that individuals receive, including transfer payments–minus the taxes and fees that individuals pay to governments.

Domestic demand: Total purchases of goods and services, regardless of their origin, by U.S. consumers, businesses, and governments during a given period. Domestic demand equals gross domestic product minus net exports.


Economic profits: Corporations’ profits, adjusted to remove distortions in depreciation allowances caused by tax rules and to exclude the effect of inflation on the value of inventories. Economic profits are a better measure of profits from current production than are the book profits reported by corporations. Economic profits are referred to as “corporate profits with inventory valuation and capital consumption adjustments” in the national income and product accounts. (CBO)

Effective tax rate: For individual income taxes, the effective tax rate is typically expressed as the ratio of taxes paid to adjusted gross income. For corporate income taxes, it is the ratio of taxes paid to book profits. For some purposes–such as calculating an overall tax rate on all income–an effective tax rate is computed on a base that includes the untaxed portion of Social Security benefits, interest on tax-exempt bonds, and similar items. It can also be computed on a base of personal income as measured by the national income and product accounts. The effective tax rate is a useful measure because the tax code’s various exemptions, credits, deductions, and tax rates make actual ratios of taxes paid to income very different from statutory tax rates. (CBO)

Employment: Two estimates of employment are commonly used. One comes from the so-called establishment survey of employers (the Department of Labor’s Current Employment Statistics Survey), which measures employment as the estimated number of nonfarm wage and salary jobs. (Thus, a person with more than one job may be counted more than once.) The other estimate comes from the so-called household survey (the Census Bureau’s Current Population Survey), which measures employment as the estimated number of people employed. (Thus, someone with more than one job is counted only once.) The household survey is based on a smaller sample than the establishment survey and therefore yields a more volatile estimate of employment. (CBO)

Employment cost index (ECI): An index of the weighted-average cost of an hour of labor–comprising the cost to the employer of wage and salary payments, employee benefits, and payroll taxes for social insurance programs, such as Social Security. The ECI is structured so that it is not affected by changes in the mix of occupations in the labor force or the mix of employment by industry. (BLS)

Entitlements are benefit programs established by law, such as Social Security, Medicare and Medicaid that require the Federal government to pay specified benefits to eligible individuals. From a budgetary perspective, the fundamental characteristic of an entitlement is the absence of annual, discretionary decisions on funding levels. Instead, formulas included in laws establishing the entitlement programs determine how much money the Federal government is obligated to pay.  For this reason, entitlements constitute the bulk of a larger budget category called “mandatory spending” – reflecting the absence of annual discretionary funding decisions. (WBR)

Exchange rate: The number of units of a foreign currency that can be bought with one unit of the domestic currency, or vice versa. (CBO)

Excise tax: A tax levied on the purchase of a specific type of good or service, such as tobacco products or air transportation services. (CBO)

Expansion: A phase of the business cycle that begins when gross domestic product exceeds its previous peak and extends until GDP reaches its next peak. (CBO)


Federal Funds Rate:  U.S. banks are obligated by law to maintain certain levels of “reserves,” typically 10% of the total value of the bank’s demand accounts. If a bank wants to issue a loan that would reduce reserves below the legally required minimum, it adds to its reserves by borrowing funds—usually overnight—from another bank that has surplus reserves with the Fed. The interest rate that the first bank pays to the second bank is negotiated between the two banks, and the (weighted) average of this rate across all banks is the effective federal funds rate. The nominal rate is a target set by the governors of the Federal Reserve, although the Fed cannot set an exact federal funds rate. If the Fed wants to expand the reserves of depository institutions, thereby enhancing their lending capacity, it will supply reserves to the market.

Federal Open Market Committee: The group within the Federal Reserve System that determines the stance of monetary policy. The open-market desk at the Federal Reserve Bank of New York implements that policy with open-market operations (the purchase or sale of government securities), which influence short-term interest rates–especially the federal funds rate–and the growth of the money supply. The committee 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. (CBO)

Federal Reserve System: The central bank of the United States. The Federal Reserve is responsible for conducting the nation’s monetary policy and overseeing credit conditions. (CBO)

Fiscal policy: The government’s tax and spending policies, which influence the amount and maturity of government debt as well as the level, composition, and distribution of national output and income. (CBO)

Fiscal year:  In order to keep track of its revenues and expenditures in an orderly way, the Federal government has established a 12-month period known as the “Fiscal Year” (FY).  Since fiscal years are determined by the calendar year in which the fiscal period ends, the October 1, 2007 to September 30, 2008 fiscal period is FY 2008. (WBR)

Foreign direct investment: Financial investment by which a person or an entity acquires a lasting interest in, and a degree of influence over the management of, a business enterprise in a foreign country. (CBO)


GDP price index: A summary measure of the prices of all goods and services that make up gross domestic product. The change in the GDP price index is used as a measure of inflation in the overall economy. (CBO)

Gross domestic income (GDI): The sum of all income earned in the domestic production of goods and services. In theory, GDI should equal gross domestic product, but measurement difficulties leave a statistical discrepancy between the two. (CBO)

Gross domestic product (GDP): The total market value of goods and services produced domestically during a given period. That value is conceptually equal to gross domestic income, but measurement difficulties result in a statistical discrepancy between the two. The components of GDP are consumption (both household and government), gross investment (both private and government), and net exports. (CBO)

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


Home equity: The value that an owner has in a home, calculated by subtracting the value of any outstanding mortgage (or other loan) secured by the home from the home’s current market value. (CBO)


Inflation: Growth in a general category of prices, usually expressed as an annual rate of change. (WBR)

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


Labor force: The number of people age 16 or older in the civilian noninstitutional population who have jobs or who are available for work and are actively seeking jobs. (The civilian noninstitutional population excludes members of the armed forces on active duty and people in penal or mental institutions or in homes for the elderly or infirm.) (CBO)

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. (CBO)

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


Marginal tax rate: The tax rate that would apply to an additional dollar of a taxpayer’s income. Compare with effective tax rate and statutory tax rate. (CBO)

Monetary policy: The strategy of influencing changes in the money supply and interest rates to affect output and inflation. An “easy” monetary policy suggests faster growth of the money supply and initially lower short-term interest rates intended to increase aggregate demand, but it may lead to higher inflation. A “tight” monetary policy suggests slower growth of the money supply and higher interest rates in the near term in an attempt to reduce inflationary pressure by lowering aggregate demand. The Federal Reserve System conducts monetary policy in the United States. (CBO)


National income: Total income earned by U.S. residents from all sources, including employee compensation (wages, salaries, benefits, and employers’ share of payroll taxes for social insurance programs), corporate profits, net interest, rental income, and proprietors’ income. (CBO)

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 (budget surpluses). National saving represents all income not consumed, publicly or privately, during a given period. (CBO)

Net exports: The exports of goods and services produced in a country minus the country’s imports of goods and services produced elsewhere; also referred to as the trade balance. (CBO)

Net interest: In the federal budget, net interest comprises the government’s interest payments on debt held by the public. (CBO)

Nominal: A measure based on current-dollar value. (CBO)


Off-budget: Spending or revenues sometimes excluded from the budget totals by law. The revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal Service are off-budget. (CBO)

Outlays: Spending to pay a federal obligation. Outlays may pay for obligations incurred in a prior fiscal year or in the current year; hence, they flow partly from unexpended balances of prior-year budget authority and partly from budget authority provided for the current year. For most categories of spending, outlays are recorded on a cash accounting basis. However, outlays for interest on debt held by the public are recorded on an accrual accounting basis, and outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs instead of cash transactions. (CBO)


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. (CBO)

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 present value depends on the rate of interest used (the discount rate). For example, if $100 is invested on January 1 at an annual interest rate of 5 percent, it will grow to $105 by January 1 of the next year. Hence, at an annual 5 percent interest rate, the present value of $105 payable a year from today is $100. (CBO)

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 services. 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)


Real: Adjusted to remove the effects of inflation. For example, 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. (WBR)

Recession: A phase of the business cycle that extends from a peak to the next trough and that is characterized by a substantial decline in overall business activity–output, income, employment, and trade–for at least several months. As a rule of thumb, though not an official measure, recessions are often identified by a decline in real gross domestic product for at least two consecutive quarters. (CBO)

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. (CBO)

Risk premium: The additional return that investors require to hold assets whose returns are more variable than those of riskless assets. 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 interest rates or earnings (in the case of corporate stocks). (CBO)


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

Surplus: The amount by which the federal government’s total revenues exceed its total outlays in a given period, typically a fiscal year. (CBO)


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

Three-month Treasury bill: A security issued by the U.S. Treasury that is to be redeemed in 91 days. Treasury bills are sold for less than the value paid at redemption but otherwise do not bear interest. (CBO)

Trade-weighted value of the dollar: The value of the U.S. dollar relative to the currencies of U.S. trading partners, with the weight of each country’s currency equal to that country’s share of U.S. trade. The real trade-weighted value of the dollar is an index of the trade-weighted value of the dollar whose movement is adjusted for the difference between U.S. inflation and inflation among U.S. trading partners. An increase in the real trade-weighted value of the dollar means that the price of U.S.-produced goods and services has increased relative to the price of foreign-produced goods and services. (CBO)


Unemployment rate: The number of jobless people who are available for work and are actively seeking jobs, expressed as a percentage of the labor force. (BLS)

Unified budget: The entire federal budget, which consolidates all on-budget and off-budget outlays and revenues. (WBR)

Unilateral transfers: Payments from sources within the United States to sources abroad (and vice versa) that are not made in exchange for goods or services. Examples include a private gift sent abroad, a pension payment from a U.S. employer to an eligible retiree living in a foreign country, or taxes paid to the United States by people living overseas. (CBO)


Yield: The average annual rate of return on an investment held over a period of time. For a fixed-income security, such as a bond, the yield is determined by several factors, including the security’s interest rate, face value, and purchase price and the length of time that the security is held. The yield to maturity is the effective interest rate earned on a fixed-income security if it is held until the date on which it comes due for payment. (CBO)

Yield curve: The relationship formed by plotting the yields of otherwise comparable fixed-income securities against their terms to 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). See short-term interest rate and yield