Week 14: Public Finance

a _____ denotes the total level or amount of something at a particular point in time. a _____ is the change to the stock of that something over a period of time.

stock; flow

households and forms receive public goods and services in exchange for the net ____ they pay

taxes

the government uses the revenue from net ____ to make monetary payments, or expenditures, in the resource and product markets

taxes

interest on the national debt is a major expenditure for the federal government, which indicates that the federal government:

spends more than it receives in revenue, forcing it to borrow to finance its deficits

in choosing which type of tax to use, a government takes into consideration many factors, including:

discouraging or encouraging certain behavior

a proportional tax is sometimes called a ________ tax

flat

suppose that tax revenue is $350 billion and that government spending is $250 billion. The budget is:

in surplus

if the demand for loanable funds increases, interest rates ________, which can have big effects on consumers

increase

most economists prefer measuring the deficit relative to _____ because it places the deficit in better context and allows a comparison across time or across governments from different countries

GDP

"a system where everyone pays the same percentage in taxes is fair" this person supports

proportional taxes

most federal spending concentrates on four areas:

-pensions and income security -interest on the national debt -national defense -health

which of the following are components of the circular flow model

-resource market -product market -firms -households

sales and excise taxes are

a source of income for the state government

regressive tax

a tax in which the average tax rate decreases as taxable income increases (and increases as taxable income decreases)

the circular flow model with the government added uses net taxes because:

households and firms receive transfer payments and subsidies from the government

a budget deficit occurs when a government receives _____________ revenue than it spends in any given fiscal year

less

a deficit occurs when revenue is ______ than spending

less

Daniel has an annual taxable income of $25,000 and pays $2,500 a year in income taxes. Julia earns $45,000 in taxable income a year and pays $5,000 in income taxes. This tax is ______

progressive

a ____ tax is one in which the average tax rate increase as income increases

progressive

a _____ tax is one in which the average tax rate stays the same as income increases

proportional

the type of tax that is assessed is determined

by using the average tax rate

in choosing which type of tax to use, a government takes into consideration many factors, typically including:

-fairness -the ease with which taxes can be collected

state governments spend their revenue on:

-health -infrastructure -public welfare programs -education

most economists prefer measuring the deficit relative to GDP because

-it allows a comparison across time -it allows a comparison across countries (because it places the deficit in better context and allows a comparison across time or across governments from different countries, most economists prefer measuring the deficit relative to GDP)

at the federal government level, the main sources of income are:

-social insurance and retirement receipts -payroll taxes

mrs. granger receives her monthly workers' compensation benefit check, which she uses to help pay her bills until she can return to work. 1) the government is ____ 2) which market is in involved? 3) we call this payment _____

1) is making a payment 2) neither market 3) a transfer payment

progressive tax

a tax in which the average tax rate increases as taxable income increases (and decreases as taxable income decreases)

proportional tax

a tax in which the average tax rate remains constant with either increases or decreases in taxable income

if the government had no national ___, it would not have to make interest payments, and other things could be done with these funds

debt

the national ________ is the accumulation of deficits and surpluses over time

debt

the national _________ is the accumulation of deficits and surpluses over time

debt

Daniel has an annual taxable income of $25,000 and pays $2,500 a year in income taxes. Julia earns $50,000 in taxable income a year and pays $5,000 in income taxes. This tax is known as ________

proportional (each person pays 10%)

the national debt for a given year is

equal to the national debt in the previous year plus the given year's deficit or surplus

sources of revenue are the same for federal, state, and local governments

false

medicare taxes are an example of:

proportional tax

a deficit surplus occurs when revenue is ______ than spending

more

more often than not, the federal government spends _____ it receives in revenue, forcing it to borrow to finance its deficits

more than

an ____ cost is associated with the interest payments made on the national debt

opportunity

sales taxes are ___________ in that the tax rate falls as the amount taxed rises

regressive

a budget ____occurs when a government receives more revenue than it spends in any given fiscal year

surplus

average tax rate =

the total amount of tax paid divided by taxable income and expressed as a percentage (tax paid/income)*100 or tax amount divided by income times 100

most local governments receive financial support from the federal and state levels

true