Business Economics Chapter 10
Deficit spending
Annual government spending in excess of taxes and other revenues
President considers appropriation bills-vetos or signs laws
Explain the process of accepting a federal budget for a given year. OMB combines all information into single budget (President presents in Jan. or Feb.) Congress "carefully" considers, debates, and modifies the President's proposed budget ?
Keynesian Economics (1936-1970s)-government was needed to provide incentive to work
Identify the 3 periods (including dates) in fiscal history and give a short explanation in your words what was going on during the time. Classical Economics (1776-1930s)-the idea that free markets can regulate themselves ? Supply Side Economics (1980s-present)-stagflation occurs, tax cuts can help economy by raising supply
Supply Side Economics (1980s-present)-stagflation occurs, tax cuts can help economy by raising supply
Identify the 3 periods (including dates) in fiscal history and give a short explanation in your words what was going on during the time. Classical Economics (1776-1930s)-the idea that free markets can regulate themselves Keynesian Economics (1936-1970s)-government was needed to provide incentive to work ?
b
The order of the approval of the federal budget is a. president to Congress to Supreme Court b. president to Congress and back to president c. House Appropriations Committee to Congress to president d. Congress to House Speaker to president
National debt
The total amount borrowed from investors to finance the government's deficit spending
a
Transfer payments from the government to individuals might be used to a. support Social Security b. purchase supplies c. maintain the armed forces d. pay utilities
b
Which of these is an example of discretionary spending a. interest payment of the federal debt b. national defense c. Medicare and Medicaid d. Social Security
Welfare 22%
List the categories and percentages of money coming out of the federal budget? Social Security 41% ? Defense 20% Physical, Human, and Community 8% Interest 6% Law Enforcement 2%
Defense 20%
List the categories and percentages of money coming out of the federal budget? Social Security 41% Welfare 22% ? Physical, Human, and Community 8% Interest 6% Law Enforcement 2%
a
Local government's largest spending category is? a. elementary and secondary education b. hospitals c. police protection d. public welfare
Pork
A line-item budget expenditure that circumvents normal budget procedures and benefits a small number of people or businesses
Budget deficit
A negative balance after expenditures are subtracted from revenues
Budget surplus
A positive balance after expenditures are subtracted from revenues
High rates discourage extra work and low rates encourage extra worth
Diagram and explain the theory of the laffer curve. What was the flaw? ? It led to huge deficits because tax rates don't affect how much people work
It led to huge deficits because tax rates don't affect how much people work
Diagram and explain the theory of the laffer curve. What was the flaw? High rates discourage extra work and low rates encourage extra worth ?
d
Social security is an example of a a. pork expenditure b. private sector expenditure c. subsidy d. transfer payment
Mandatory
Federal spending authorized by law that continues without the need for annual approvals by Congress
c
Federal-state insurance programs for low-income persons are called a. Medicare b. OSHA c. Medicaid d. Social Security
Intergovernmental expenditures
Funds that one level of government transfers to another level for spending
Subsidy
Government payment to encourage or protect a certain economic activity
a
Government spending, as a percentage of GDP, ____________ since the Great Depression a. has increased b. has decreased slightly c. has decreased dramatically d. has remained fairly constant
Crowding out effect
Higher than normal interest rates and diminished access to financial capital faced by private investors when government increases its borrowing in financial markets
Create more money
How can we pay for the deficit in our budget? ? Borrow money-sell bonds
Borrow money-sell bonds
How can we pay for the deficit in our budget? Create more money ?
c
How is the national debt different from private debt? a. Most of the national debt is owed to others b. Private debt does not have to be repaid by a specific date c. The national debt does not have to be repaid by a specific date d. The government gives up purchasing power when it repays the national debt
Classical Economics (1776-1930s)-the idea that free markets can regulate themselves
Identify the 3 periods (including dates) in fiscal history and give a short explanation in your words what was going on during the time. ? Keynesian Economics (1936-1970s)-government was needed to provide incentive to work Supply Side Economics (1980s-present)-stagflation occurs, tax cuts can help economy by raising supply
Fiscal year
12-month financial planning period that may not coincide with the calendar year
a
The following reduces the federal deficit? a. an increase in taxes b. an increase in spending c. entitlement programs d. low economic activity
Transfer
Payment for which the government receives neither goods nor services in return
Spending cap
Limits on annual discretionary spending
Discretionary
Spending for federal programs that must receive annual authorization
b
All levels of government together consume about a. one-tenth of the nation's output b. one-third of the nation's output c. one-half of the nation's output d. three-fourths of the nation's output
Balanced budget
Annual budget in which expenditures equal revenues
Federal budget
Annual plan outlining proposed expenditures and anticipated revenues
b
Describe the relationship of the federal deficit to the national debt a. The federal deficit is another term for national debt b. The federal deficit leads to borrowing, which adds to the national debt c. The national debt leads to borrowing, which adds to the federal deficit d. The national debt is the opposite of the federal deficit
Balanced budget amendment
Constitutional amendment requiring government to spend no more than it collects in taxes and other revenues, excluding borrowing
OMB combines all information into single budget (President presents in Jan. or Feb.)
Explain the process of accepting a federal budget for a given year. ? Congress "carefully" considers, debates, and modifies the President's proposed budget President considers appropriation bills-vetos or signs laws
Congress "carefully" considers, debates, and modifies the President's proposed budget
Explain the process of accepting a federal budget for a given year. OMB combines all information into single budget (President presents in Jan. or Feb.) ? President considers appropriation bills-vetos or signs laws
Presidents were able to keep programs at or above previous levels for fear that it would force a recession, but they never wanted to increase taxes to cover increased costs. Ronald Reagan
Explain the reason why we are so far in debt? Who is responsible?
Medicare
Federal health-care program for senior citizens, regardless of income
Medicaid
Joint federal-state medical insurance program for low-income people
Appropriations bill
Legislation authorizing spending for certain purposes
Per capita
Per person basis; total divided by population
Social Security 29%
List the categories and percentages of money coming into the federal budget? Federal Income Taxes 40% ? Borrowed 17% Corporations Tax 7% Customs duties and excise taxes 7%
Borrowed 17%
List the categories and percentages of money coming into the federal budget? Federal Income Taxes 40% Social Security 29% ? Corporations Tax 7% Customs duties and excise taxes 7%
Corporations Tax 7%
List the categories and percentages of money coming into the federal budget? Federal Income Taxes 40% Social Security 29% Borrowed 17% ? Customs duties and excise taxes 7%
Customs duties and excise taxes 7%
List the categories and percentages of money coming into the federal budget? Federal Income Taxes 40% Social Security 29% Borrowed 17% Corporations Tax 7% ?
Federal Income Taxes 40%
List the categories and percentages of money coming into the federal budget? Social Security 29% Borrowed 17% Corporations Tax 7% Customs duties and excise taxes 7%
Social Security 41%
List the categories and percentages of money coming out of the federal budget? ? Welfare 22% Defense 20% Physical, Human, and Community 8% Interest 6% Law Enforcement 2%
Physical, Human, and Community 8%
List the categories and percentages of money coming out of the federal budget? Social Security 41% Welfare 22% Defense 20% ? Interest 6% Law Enforcement 2%
Interest 6%
List the categories and percentages of money coming out of the federal budget? Social Security 41% Welfare 22% Defense 20% Physical, Human, and Community 8% ? Law Enforcement 2%
Law Enforcement 2%
List the categories and percentages of money coming out of the federal budget? Social Security 41% Welfare 22% Defense 20% Physical, Human, and Community 8% Interest 6% ?
Line item veto
Power to cancel specific budget items without rejecting the entire budget
Entitlement
Program or benefit using established eligibility requirements to provide health, nutritional, or income supplements to individuals
Pay as you go
Provision that new spending proposals or tax cuts must be offset by reductions elsewhere
d
Public sector spending a. has no effect on the distribution of income b. does not compete with the private sector c. has little effect on the tax burden of individual taxpayers d. both directly and indirectly affect how resources are allocated
Trust fund
Special account used to hold revenues designated for a specific expenditure such as Social Security, Medicare, or highways
c
State government's largest spending category is a. highways b. education c. intergovernmental expenditures d. public welfare
Private sector
That part of the economy made up of private individuals and businesses
Public sector
That part of the economy made up of the local, state, and federal governments
c
The Budget Enforcement Act of 1990 allowed for? a. the line-item veto b. spending caps c. a pay-as-you-go revision d. entitlements
a
The Office of Management and Budget (OMB) plays what role in establishing the federal budget? a. the OMB assemble the budget under presidential guidelines b. the OMB approves the final budget c. the OMB evaluates the economic impact of proposed congressional actions on the budget d. the OMB determines how the money in the budget will be distributed among the major categories of spending
a
The following would be considered a grant-in-aid? a. an interstate highway construction program b. unemployment compensation c. government purchases of airplanes and tanks d. wages and salaries
c
The federal budget is formulated by a. the Senate b. the House of Representatives c. the president d. the Congressional Budget Office
b
The following is an example of discretionary spending a. Social Security b. National defense c. Medicare d. Interest on the national debt
c
This act was created to trim $500 billion from the deficit? a. Economic Recover Tax Act b. Gramm-Rudman-Hollings Bill c. Omnibus Budget Reconciliation Act d. Budget Enforcement Act
Grant in aid
Transfer payment from one level of government to another not involving compensation
Great Depression
What are 2 reasons why government spending has increased since the 1930s? ? World War II
World War II
What are 2 reasons why government spending has increased since the 1930s? Great Depression ?
b
What are the 2 broad categories of government spending? a. defense and welfare b. the purchase of goods and services, and transfer payments c. public and private d. payments and transfers
Expansionary-Fiscal policies, like higher spending and tax cuts, that encourage economic growth
What are the 2 forms of fiscal policy? Explain each. ? Contractionary-Fiscal policies, like lower spending and higher taxes, that reduce economic growth
Contractionary-Fiscal policies, like lower spending and higher taxes, that reduce economic growth
What are the 2 forms of fiscal policy? Explain each. Expansionary-Fiscal policies, like higher spending and tax cuts, that encourage economic growth ?
Goods or Services
What are the 2 types of government spending? ? Transfer Payment
Transfer Payment
What are the 2 types of government spending? Goods or Services ?
Raise taxes or cut spending
What are the 4 solutions to stopping deficit spending? ? Call for balanced budget Pay off with surplus money Use employment growth
Call for balanced budget
What are the 4 solutions to stopping deficit spending? Raise taxes or cut spending ? Pay off with surplus money Use employment growth
Pay off with surplus money
What are the 4 solutions to stopping deficit spending? Raise taxes or cut spending Call for balanced budget ? Use employment growth
Use employment growth
What are the 4 solutions to stopping deficit spending? Raise taxes or cut spending Call for balanced budget Pay off with surplus money ?
Resource Allocation
What are the 4 ways government impacts the economy? ? (re)Distribution of Income Compete with Private Sector Increasing tax burden
Compete with Private Sector
What are the 4 ways government impacts the economy? Resource Allocation (re)Distribution of Income ? Increasing tax burden
Increasing tax burden
What are the 4 ways government impacts the economy? Resource Allocation (re)Distribution of Income Compete with Private Sector ?
(re)Distribution of Income
What are the 4 ways government impacts the economy? Resource Allocation ? Compete with Private Sector Increasing tax burden
Increase/decrease spending
What are the governments 2 tools in "adjusting" the economy? ? Increase/decrease taxes
Increase/decrease taxes
What are the governments 2 tools in "adjusting" the economy? Increase/decrease spending ?
3.98 trillion
What is the current budget?
22 trillion
What is the current national debt?
National debt is the total amount owed, whereas the national deficit is the amount owed in a year
What is the difference between national debt and national deficit?
a
When was the last budget surplus before the Clinton administration a. 1969 b. 1972 c. 1998 d. 1981
b
Which act attempted to establish a balanced budget? a. Budget Enforcement Act b. Gramm-Rudman-Hollings Act c. Omnibus Budget Reconciliation Act d. Economic Recovery Tax Act
a
Which act contained the "pay-as-you-go" provision a. Budget Enforcement Act b. Gramm-Rudman-Hollings Bill c. Omnibus Budget Reconciliation Act d. Economic Recovery Tax Act
b
Which is an example of an entitlement payment? a. federal money given to a contractor in exchange for military uniforms b. federal money given to a senior citizen as a Social Security payment c. federal money spent to pay interest on the national debt d. federal money spent to build a new public highway
d
Which of these accounts for the largest amount of local expenditures a. insurance trust funds b. public utilities c. highways d. elementary and secondary education