Economics Unit 2 Test

Public goods

A commodity or service that is provided without profit to all members of a society, either by the government or a private individual or organization. A benefit or well-being of the public. A government does not seek to make a profit. Rather, it can pay for public goods with tax dollars, thus ensuring that all taxpayers contribute to the cost.

Federal Budget

A fiscal plan for spending tax money.

Tax Base

A form of wealth such as income, property, goods, or services, that is subject to taxes.

Progressive Tax (define understand the arguments in favor of this type of tax)

A higher percentage rate of taxation is placed on high income earners than a low income earner.

Regressive Tax

A large percent of taxes are taken from people with low incomes than from people with high incomes.

Tax

A mandatory payment to a local, state, or national government used to fund public goods and services.

Contractionary Fiscal Policy (provide two specific examples)

A policy designed to lower inflation and cool an overheated economy by cutting government spending, increasing taxes, or both.

Expansionary Fiscal Policy (provide two specific examples)

A policy designed to promote economic activity by increasing government spending, cutting taxes, or both.

Federal Deficit

A shortfall between government revenues and expenditures in any given year.

Corporate Income Tax

A tax determined by a corporation's profits.

Individual Income Tax

A tax determined by an individual's income from all sources.

Property Taxes

A tax determined by the value of an individual's or business's assets.

Sales Tax

A tax determined by the value of designated goods and services at the time of sale.

Explain discouraged workers as it relates to unemployment

At any one time, a number of unemployed people have given up looking for work. Though willing and able to work, they no longer expect to find jobs. These discouraged workers do not fit the BLS's definition of unemployed, which counts only those people who are making an effort to find work. Because discouraged workers are left out of BLS calculations, the official unemployment rate is too low.

What other demographic factors contribute to poverty?

Certain trends within the population, such as divorce or births to single mothers tend to increase the poverty rate.

How does the government discourage negative externalities?

Command-and-control policies, and market-based policies.

Monetary Policy

Consists of decisions made by a central bank about the amount of money in circulation and interest rates.

What impact does deflation have on the economy?

Deflation may also be bad news for businesses. When prices are dropping, people tend to put off spending, hoping for still lower prices later on. As consumer spending slows, businesses cut wages, lay off workers, and may even go bankrupt. The result can be a deflationary spiral, such as occurred in the early days of the Great Depression. In a deflationary spiral, falling prices lead to business slowdowns, which lead to lower wages, which lead to still lower prices, and so on.

Tax Structure

Different ways on how society taxes their people.

What is a recession?

Economic growth weakens.

Consumer Price Index (CPI)

Economists at the BLS track changes in the cost of living using what is known as the consumer price index. The consumer price index (CPI) is a price index for a "market basket" of consumer goods and services. Changes in the average prices of these items approximate the change in the overall cost of living.

Explain each stage of the business cycle ?

Expansion: Economy is growing, upswing of economy. Peak: Highest point between the end of economic expansion and start of contraction. Contraction (or Recession): Economic growth weakens. Trough: It's when the economy hits bottom. The economy transitions from the contraction phase to the expansion phase.

In general what impact does GDP (growth vs decline) have on the economy (job opportunities etc...)?

GDP Growth: Overall, growth in GDP makes people better off, High GDP countries have higher level of literacy and education, growth in GDP makes its citizens healthier and citizens have high life expectancy. The health care system is getting better and more developed, and GDP growth leads to better standard of living. Bigger houses, more food and cloths etc. GDP Decline: Overall, decline in GDP declines the standard of living, low GDP countries have lower level of literacy and education, declining GDP means that the medical facilities are getting worse and hence people have lower life expectancy and their health is not getting better but getting worse, and GDP decline leads to decline in standards of living. Smaller houses, less food and less cloths etc.

Gross Domestic Product (what does it include, what does it measure?)

GDP includes: Produced within a country: Goods and services must be produced within the country's borders. The firms that produce the goods and services do not necessarily have to be American owned. Cars manufactured in the United States by the Japanese automaker Toyota, for example, are included in this country's GDP. During a given period of time: The Bureau of Economic Analysis calculates GDP every quarter, or three-month period. Economists use the calendar year GDP to compare production from year to year or from country to country. This annual GDP includes all final goods and services produced between January 1 and December 31.

How/why does the government act to protect consumers?

HOW: Caveat emptor. This long-standing rule of the marketplace is Latin for "Let the buyer beware." It serves as a warning to buyers that they purchase goods and services at their own risk. But in today's complex market, buyers may not have all the information they need to make sound judgments about products. Instead, they have come to rely on regulatory agencies to provide such information. Consumers, savers, and investors also look to such agencies to ensure that products are safe and dependable. WHY: So, businesses don't cheat consumers by unfair practices or not giving goods as promised.

How/why does the government protects workers?

HOW: The federal government safeguards the interests of workers through the Department of Labor. It does this by making sure workers get the wages due to them, fostering workplaces that are free of discrimination, and providing unemployment insurance. Another goal of DOL is protecting workers' physical well-being. To ensure safe and secure workplaces, DOL relies mainly on the Occupational Safety and Health Administration. OSHA sets safety and health standards for industries. When you see construction workers wearing hard hats or highway workers wearing reflective vests, you can be sure OSHA standards are involved. WHY: So that the workers are not at the mercy of their employers when it comes to job related safety and benefits.

Nations with higher GDP per capita tend to be...

Have a society with higher standard of living. But size alone doesn't provide a complete picture. Sometimes a country with more population produces more goods but that doesn't mean it has higher standards of living.

What is the relationship between education and poverty?

Higher education = lesser poverty. Lesser education = More poverty.

Income inequality

Income inequality is the unequal distribution of individual income in a country.

How does inflation impact the value of the dollar?

Inflation decreases the value of a dollar over time.

How do interest rates impact inflation?

Inflation refers to the rate at which prices for goods and services rises. In general, as interest rates are lowered, more people are able to borrow more money. The result is that consumers have more money to spend, causing the economy to grow and inflation to increase.

What is the concept of the business cycle?

It is a cycle of economic expansion and contraction.

Medicare (understand what this program is and what percentage of federal spending it makes up)

Medicare is a federal health insurance that the government provides to people who are over 65 years of age, who are retired, and to those with disabilities. 40.2% of federal spending makes up for Medicare.

Benefits Received Principle (define and provide an example. This must be different than the prior example)

People who benefit directly from public goods should pay for them in proportion to the amount of benefits received. Example:

Monetary inflation

It is the constant increase in the money supply of a country.

Structural Unemployment (provide an example. This must be different than your prior example)

Jobs exist but workers do not have the skills.

How do economists define unemployment?

Members of the labor force who are jobless, but are looking for work, are classified as unemployed. To be counted as unemployed, individuals must have actively looked for work in the four weeks preceding the survey week. There is an exception: people who have been laid off and are waiting to be called back to their jobs need not actively seek work to be counted as unemployed.

The Federal Reserve/Central Bank

Our nation's main monetary authority responsible for mandatory policy.

What are the drawbacks from government regulation?

Overregulation, balancing costs and benefits, and regulatory capture.

Ability to Pay Principle (define and provide an example. This must be different than the prior example)

People should be taxed on their ability to pay, no matter the level of benefits they receive. A person who has high income should be taxed more than the person with low income. Example:

GDP per capita (what is it, and what does it measure)

Per capita means "per person." Per capita GDP is a nation's real gross domestic product divided by its population. It is an accepted measure of a society's standard of living.

Poverty/Poverty Rate

Poverty: it is a state when a person lacks financial resources to enjoy minimum standard of life considered acceptable in society. Poverty rate provides estimates of how many people are poor in a country. Poverty rate is the ratio of the number of people whose income falls below the poverty line.

What are the benefits of private property?

Private ownership encourages people to take care of their property, private ownership encourages people to make the most productive use of their property, and private ownership encourages people to develop their property in ways that benefit others.

Balanced Budget

Revenues that are equal to expenditures.

Social Security (understand what this program is and what percentage of federal spending it makes up)

Social Security is a social welfare and insurance program managed by US federal government. Employers and employees pay Social Security taxes and these taxes provides benefits to people in old age, disability, survivors who are eligible. 36.5% of federal spending makes up Social Security.

How does the government promote positive externalities?

Subsides, and public provisions.

Frictional Unemployment (provide an example. This must be different than your prior example)

Temporary unemployment experienced by changing jobs.

How does government protect property rights?

The Constitution lays the foundation for a legal system that protects property rights. One institution that protects property rights is the court system, sometimes assisted by police forces. Another is the U.S. Patent and Trademark Office (USPTO). This federal government agency protects intellectual property, or property in the form of ideas that have commercial value. It does so by issuing patents, copyrights, and trademarks.

Entitlements

The fact of having the right or ownership to something.

Fiscal Policy

The federal government's use of and government spending to stabilize the economy.

Inflation/Inflation Rate

The inflation rate is the percentage increase in the average price level of goods and services from one month or year to the next. It is tracked by the same government agency that tracks the unemployment rate, the Bureau of Labor Statistics.

What is deflation?

The inflation rate is usually a positive number, meaning that the overall price level is rising. But the inflation rate can be negative, a condition that economists call deflation. Deflation occurs when prices go down over time. Deflation is good news for consumers and savers but bad for businesses.

The primary source of income for federal and most state governments is...

The primary source of income for federal and most state government is Personal Income (35.5%) and second is Sales (26.7%) taxes.

Proportional Tax (define and understand the arguments in favor of this type of tax)

The same percent of income in taken from all taxpayers regardless of income level.

Demand-side economics

The theory that the best way to ensure economic growth is to estimate demand by putting more money in the hands of consumers via lowering taxes on lower income earners or increasing spending.

Supply-side economics

The theory that the best way to ensure economic growth is to stimulate overall supply by cutting taxes on business and high-income income taxpayers.

National Debt (understand how much it is and who owns the majority of it)

The total amount owed by a nation's government as a result of borrowing. Total debt is about $19.1 trillion. The majority is owned by United States ($12.9 Trillion)

Seasonal Unemployment (provide an example. This must be different than your prior example)

There is a limited need for a type of work a particular period of the year, based on factors like deadlines or climate.

Explain efficiency as it relates to unemployment

There is also a tradeoff between employment and efficiency. Businesses maximize their profits when they produce the largest number of goods possible at the lowest price possible. In some cases, though, labor is more expensive (less efficient) than capital equipment. Consequently, there is always a trade-off between the cost and productivity of labor and that of labor-substituting capital equipment and that effectively reduces the number of jobs available.

What economic powers does The Constitution grant the federal government?

To lay and collect taxes, to provide for the general welfare, to borrow money, to regulate interstate and foreign commerce, to establish uniform bankruptcy laws, to coin money and regulate its value, to fix the standard of weights and measures, and to protect the writings and discoveries of authors and inventors.

What are the major concerns about the national debt?

Two reasons: They do not like to see money flowing out of the U.S. economy. And they worry that Congress is becoming to dependent on foreign lender

Cyclical Unemployment (provide an example. This must be different than your prior example)

Unemployment caused by a part of the business cycle. Over time, the economy experiences many ups and downs. It's caused by the contraction phase of the business cycle.

Explain inequality as it relates to unemployment

Unemployment results in inequality when it continues for successive cycles. Income inequality occurs when the majority of a country's resources are concentrated within a minority of the country's population.

How/why does the government act to maintain competition?

WHY: Competition is essential if markets are going to work the way they are supposed to work. The pressures of competition force producers to use resources efficiently, to develop new or better products, and to keep products and services affordable. Because competition is vital to the economy, the government acts to maintain competition when markets fail to do so. HOW: The government's main guardian of competition is the Justice Department. This cabinet-level department, through its Antitrust Division, enforces the antitrust laws that Congress has enacted over the years. It often works closely with the Federal Trade Commission. The FTC is a regulatory agency—a unit of government that makes and enforces standards for an industry or area of economic activity.

How do economists define full employment

Workers who are over 16 years of age, not working but able to work, and who have looked for work sometime during the previous 4 weeks are considered unemployed.