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

point-year of unemployment: An unemployment rate that is 1 percentage point above the NAIRU for one year. For example, if the unemployment rate averaged 2 percentage points above the NAIRU for one and one-half years, that would be three point-years of unemployment. See NAIRU.

potential real GDP: The highest level of real GDP that could persist for a substantial period without raising the rate of inflation. CBO's calculation relates potential GDP to the nonaccelerating inflation rate of unemployment, which is the unemployment rate consistent with a constant inflation rate. (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 calculation of present value depends on the rate of interest. For example, given an interest rate of 5 percent, today's 95 cents 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. (Bureau of Economic Analysis)

producers' durable equipment: Primarily nonresidential capital equipment--such as computers, machines, and transportation equipment--owned by businesses. (Bureau of Economic Analysis)

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 would 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.

real: Adjusted to remove the effects of inflation. Real (constant-dollar) output represents volume, rather than dollar value, of goods and services. Real income represents power to purchase real output. Real data are usually constructed by dividing the corresponding nominal data, such as output or a wage rate, by a price index or deflator. Real interest rate is a nominal interest rate minus the expected inflation rate. Compare with nominal.

receipt account: Any budget or off-budget 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 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. See business cycle. (NBER)

reconciliation: A process the Congress uses to make its tax and spending legislation conform with the targets established in the budget resolution. The budget resolution may contain reconciliation instructions directing certain Congressional committees to achieve deficit reduction through changes in tax or spending programs under their jurisdiction. Legislation to implement the reconciliation instructions is usually combined in one comprehensive bill. The reconciliation process primarily affects taxes, entitlement spending, and offsetting receipts. As a general rule, decisions on discretionary programs are determined separately through the appropriation process, which is also governed by allocations in the budget resolution.

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. See business cycle. (NBER)

reserve requirements: The amount of funds that banks and other depository institutions must hold as cash or as deposits with the Federal Reserve System. The Federal Reserve specifies reserve requirements depending on the level of deposits. Such requirements reduce the risk of bank failure and allow the Federal Reserve to influence the money supply. (FRB)

reserves: See monetary reserves.

residential investment: Investment in housing, primarily for construction of new single-family and multifamily housing and alterations plus additions to existing housing. (Bureau of Economic Analysis)

retained earnings: Corporate profits after tax that are used for investment rather than paid out as dividends to stockholders. (Bureau of Economic Analysis)

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

sequestration: The cancellation of budgetary resources to enforce the discretionary spending caps and pay-as-you-go process established under the Budget Enforcement Act of 1990 and the Omnibus Budget Reconciliation Act of 1993. Sequestration is triggered if the Office of Management and Budget determines that discretionary appropriations exceed the discretionary spending caps or that legislation affecting direct spending and receipts increases the deficit. Changes in direct spending and receipt legislation that increase the deficit would result in reductions in funding for entitlements not otherwise exempted by law. Discretionary spending in excess of the caps would cause the cancellation of budgetary resources within the discretionary spending category.

short-term interest rate: The interest rate earned by a debt instrument 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 was operating at potential GDP. It provides a measure of underlying fiscal policy by removing the influence of cyclical factors from the budget deficit. Compare with cyclical deficit. (CBO)

structural deficit: Same as standardized-employment deficit.

supply shock: A large and unexpected change in the production of a good or service. Examples include bumper crops, crop failures, or sudden restrictions on the supply of oil as occurred in 1973-1974 and 1979-1980. A supply shock that restricts output will raise the price of the good in short supply; a surfeit will lower the price of the good.

ten-year Treasury note: Interest-bearing note issued by the U.S. Treasury that is redeemed in 10 years. three-month Treasury bill: Security issued by the U.S. Treasury that is 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--for example, welfare or Social Security payments or money sent to relatives abroad. (Bureau of Economic Analysis)

trough: See business cycle.

trust fund: A fund, designated as a trust fund by statute, that is credited with income from earmarked collections and charged with certain outlays. Collections may come from the public (for example, taxes or user charges) or from intrabudgetary transfers. More than 150 federal government trust funds exist, of which the largest and best known finance several major benefit programs (including Social Security and Medicare) and certain infrastructure spending (the Highway and the Airport and Airway trust funds). The term "federal funds" refers to all programs that are not trust funds.

underlying rate of inflation: Rate of inflation of a modified CPI-U that excludes from the market basket the components most volatile in price--food, energy, and used cars.

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)

yield: The average annual rate of return on a security, including interest payments and repayment of principal, if 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 this increase determines the "steepness" or "flatness" of the yield curve. Ordinarily a steepening (or flattening) of the yield curve is taken to suggest that relatively short-term interest rates are expected to be higher (or lower) in the future than they are now.

*U.S. Government Printing Office: 1996 404-535/57254

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