Economics Unit 6 Review

Identify the limitations of fiscal policy.

-difficult to change spending levels -predicting the future -results are often delayed -political pressures

Identify which of the 12 FED banks is located in Dallas.

11th district

Identify the various services offered by Federal Reserve banks.

A central bank, the federal reserve notes, and can loan money banks in need.

Define a balanced budget.

Annual budgets in which expenditures equal revenues

Explain the differences between tax base and tax rate.

Base tax amount (actually any field that starts with base_) is the value in the default store currency. Tax amount (like other amount fields) is the value in the selected store currency.

Explain why Social Security taxes have increased and this effect on the labor force.

Because it payroll has increased which ultimately increases the taxes. People who work now get more deducted out of their paycheck

Explain what the Laffer curve is and what it illustrates.

It is a hypothetical or possible relationship between federal income tax rates and tax revenues

Explain how the Automatic Clearing Houses of the Federal Reserve banks operate.

It processes the billion of checks written every year.

Explain what is included in M1 and M2.

M1 is coins, currency, checks, and demand deposits. M2 is M1 pulse savings deposits and money market funds.

Explain the difference between Medicare and Medicaid.

Medicare: federal health insurance program for senior citizens, regardless of income Medicaid: joint federal-state medical insurance program for low-income people

Identify which tax yields the most at each level (where does each level get most of its money).

Federal- 47% individual State and Local - 34% sales tax

Using the money multiplier formula, calculate how much money can be created from an initial deposit of $5,000 when given a reserve requirement of 10%. Calculate how much money can be created if the reserve requirement increases to 15%.

$9,500 $9,250

Identify the types of taxes at the three different governmental levels.

Federal Income Tax, State and/or Local Income Tax, Payroll Tax, Unemployment Tax, Sales Tax, Foreign Tax, Value-Added Tax

Define FICA and explain the program contained within it.

Federal Insurance Contribution Act; levied on employers and employees to support social security and Medicare

Explain how the FED can create money

By writing a check drawn on itself.

Define deficit spending and explain why the federal government has increased it.

Deficit spending: annual government spending in excess of Texas and other revenues. They increased it because they have to borrow that money to finance revenue shortages.

Explain the difference between discount rate and prime rate.

Discount rate- the minimum interest rate by the federal reserve for lending to other banks Prime rate- the lowest rate of interest at which money may be borrowed commercially

explain the difference between discretionary and mandatory spending.

Discretionary must receive annual authorization. Mandatory is authorized by the law and continues without Annual approvals

Explain the difference between tight and easy money and when each type may be used.

Easy money- FED is trying to expand the amount of money in the economy Tight money- FED is trying to shrink the amount of money in the economy Tight money is when the bank decide there is too much money in the economy The FED can do this in a number of ways such as selling bonds or lowering interest rate it charges banks to borrow

Identify the tools of fiscal policy and explain their effect on the economy.

Economic growth, price stability, Full Employment

Who pays FICA taxes?

Employers and employees

Identify and explain the different entitlement programs at the federal and state levels.

Entitlement Programs of the federal government include Medicaid, Medicare, Social Security, Unemployment and Welfare Programs. Entitlement programs are rights granted to citizens and certain non-citizens by federal law. Entitlement programs can be broken into non-contributory and contributory programs.

Define the fractional reserve banking system.

Fractional reserve banking system- banks are required to keep a portion of their total, deposits in the form of legal reforms

Explain the effect interest rates have on consumer spending.

Interest rate- the price of credit to a borrower

Identify when the fiscal year starts and ends.

October 1- September 30

Define progressive, regressive, and proportional taxes and be able to identify examples of each

Progressive-progressive tax is a tax that takes a larger percentage from high income earners than it does from low-income individuals. regressive tax is a tax that takes a larger percentage of income from low-income earners than from high income earners proportional tax is an income tax system where the same percentage of tax is levied from all taxpayers, regardless of their income.

On what does the federal government spend most of its money?

Social security

Explain how the Social Security program works.

Social security is a federal program of disability and retirement benefits that cover most working people

Explain Supply-Side, Keynesian, and Classical economic theories.

Supply side- economic policies designed to stimulate the economy by removing government regulations and lowering marginal tax rates to increase production K- focus on the economy as a whole aggregate demand Classical- markets will self regulate/ fiscal limits

Explain the difference between surplus, deficit, and national debt.

Surplus-an amount of something left over when requirements have been met; an excess of production or supply over demand Deficit- the amount by which something, especially a sum of money, is too small National Debt- National debt

Explain how much money a bank can loan out based on required reserves.

The bank can only loan the money after they deposit the reserve requirement.

Define the FED structure and how it is organized, how the governors/directors are appointed and their responsibilities.

The federal open market committee (FOMC) conducts the daily buying and selling of government securities.

Identify the tools of the FED and explain how they are used to increase/decrease money supply

The reserve requirement - FED can change this requirement for all checking, time and saving accounts Lower deserve requirement Total MBRS. $1000 ————— =. = $10000 Reserve requirement s .10 Higher reserve rates requirements Total MBRS. $1000 ————— =. = $2,500 Reserve requirement s .40 Open market operations- buying and selling of government securities in financial markets FED Buys securities Total MBRS. $1000+$2000 ————— =. = $6000 Reserve requirement s .20 FED sells requirements Total MBRS. $1200-$400 ————— =. = $4000 Reserve requirement s .20 The discount rate- the interest the FeD charges on leans to financial institutions Raising the discount rate- if the discount rate goes up, fewer banks will want to borrow fro. The FEDS and banks will have fewer excess reserves available to loan at. Lowering the discount rate- a bank may want to borrow from the fed if it has an unexpected drop in its reserves

Explain how self-employed people are taxed by the federal government.

They must keep track of their own income and estimate how much tax they owe and makes estimated tax payments throughout the year

Define the benefits-received and the ability-to-pay principles.

Those who benefit from good roads pay the cost of those roads. The ability-to-pay principle of taxation stands in sharp contrast to the benefits principle. Ability-to-pay principle rests on the idea that the tax burden should be geared directly to one's income and wealth.

Given the following information, calculate the amount of money available for loans based on different reserve requirements. Total reserves in the bank's vault are $800,000. Show your work. - Required reserves are 10%. $720,000 - Required reserves are 5%.. 760000

answer on front. just understand how you got the answers