fiscal policy test review

sin tax

a relatively high tax designed to raise revenue while reducing consumption of a socially undesirable product

which of the following is most like a national sales tax

a value-added tax (VAT)

the progressive income tax is an example of

an automatic stabilizer

balanced budget

annual budget in which expenditures equal revenues

what is the main purpose of a sin tax

behavior adjustment

what gives the us government the right to collect taxes

constitution

policies that make production more efficient are favored by

demand and supply siders

what do severe economic downturns result in?

depression (decrease in business activity, widespread unemployment, and falling prices and wages)

if all production takes place within a country's border, the aggregate supply over one year will be

equal to the gdp

effective tax

fair and flexible, clear and simple, should be collected when most people can pay, and should be stable

the largest category of state spending is education

false

mandatory spending

federal spending authorized by law that continues without the need for annual approvals of congress

what do social security taxes pay for

for retirement and survivor programs or disability programs for the elderly

excise tax

general revenue tax levied on the manufacturer or sale of selected items

demand side economics

government is only way to offset the decline in spending by businesses, defecit spending, small amount of government spending, automatic stabalizers

keynesian economics

government spending and taxation policies suggested by john maynard keynes to stimulate the economy (lowers unemployment by stimulating aggregate demand) (government regulation)

how do production costs affect aggregate supply

higher production costs cause aggregate supply to decrease, lower production costs cause aggregate supply to increase

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

an example of intergovernmental revenue

idaho uses funds from the federal government for highway and hospital repairs

what is the major source of revenue for the federal government

individual income taxes (collected through the payroll withholding system, requires an employer to automatically deduct income taxes from a worker's paycheck and send it directly to the IRS)

how do most states finance their capital budgets

intergovenmental revenues (funds collected by one level of government that are distributed to another level of government for expenditures. mostly comes from federal gov to help fuld welfare, education, highways, health, and hospitals) others include (employee retirement, sales taxes, individual income taxes)

according to keynes, which sector was most responsible for the instability that led to the great depression

investment

what is a expansionary fiscal policy

involves increasing government spending, transfer payments, or decreasing taxes to increase AS to expand output and the economy (recessional economy) (spending > tax revenues) (budget deficit)

what is a contractionary fiscal policy

involves increasing withdrawals from the economy by reducing government spending, transfer payments, or raising taxes to decrease AD to contract ouput and the economy (inflationary economy) (spending < tax revenues) (budget surplus)

the most common way for governments to covre budget defecits is by

issuing debt

what are the problems caused by a large national debt

it decreases the amount of money available to be borrowed or invested by businesses , government must pay interest to bondholders

how did keynes feel about budget defecits

it is unfortunate but necessary to stop further declines in economic activity (when economy recovers its tax collections would rise and the debt can be paid back)

what are the arguments against a constitutional amendment requiring a balanced budget?

it would make it harder to respond to rapid economic changes, the national debt will not change

medicaid

joint federal-state medical insurance program for low-income people

the concept of fiscal policies are derived from

keynesian economics

what is macroeconomics concerned with

large economic sectors

elementary schools, police departments, and electrical service are typically paid for by

local government

president reagen tried to reduce government spending by

lowering taxes

means-tested program

one for hwich those with higher incomes get lower benefits: criteria to be accepted (household income, size, and composition)

per capita

per person basis, total divided by population

what does the debt ceiling do

premits borrowing for expenditures that have already been authorized by congress and the president

what is the maximum output an economy can sustain over a period of time

productive capacity

capital gains tax

profits from the sale of an asset held for twelve months or longer

entitlement

program or benefit using established eligibility requirements to provide health care, food, or income supplements to individuals

what are automatic stabilizers?

programs that automatically provides benefits to offset a change in people's incomes; unemployment, insurance, and entitlement programs (demand-side policy) (progressive income tax)

after intergovernmental revenue, the largest source of revenue for local governments is

property tax

medicare

provides an insurance plan that covers major hospital costs, offers optional insurance that provides additional coveerage for doctor and labaratory fees, outpatient services, and some medical equipment costs

advocates of supply side economics argue that spending by the fedeal government

slows economic growth

which of the following is the single largest federal expenditure

social security

gift tax

tax donations of money or wealth that is paid by the donor

proportional tax

tax in which percentage of income paid in tax is the same regardless of the level of income

estate tax

tax on the transfer of property when a person dies

regressive tax

tax where percentage of income paid in tax goes down as income rises

progressive tax

tax where percentage of income paid in tax rises as level of income rises

fiscal policy may involve

taxing corporations

private sector

that part of the economy made up of private individuals and businesses

who or what is behind an automatic stabilizer

the federal government

incidence of a tax

the final burden of the tax (whether the consumer or the producer is left paying for the tax)

what makes the federal income tax a progressive tax?

the higher the income a person has the higher percentage of income paid in tax rises

the concept of aggregate supply assumes that

the money supply and price levels are fixed

how is the federal budget put together

the president's office of management and budget is responsible, however congress must approve. house of representatives then seperae the budget into 13 major expenditure categories and prepare appropriation bills (authorizing spending for certain purposes)

which of the following describes the idea of the laffer curve as it is expressed mathematically

the ratios show the relationship between federal income tax rates and revenue

national debt

the total amount borrowed from investors to finance the government's defecit spending

Keyne's explanation for the great depression

the unstable spending by the businesses, or investment sector was to blame for the decline of GDP during those years

classical economics

theory that free markets operate under the laws of supply and demand and can and will regulate themselves (private sector independence)

why is it difficult to implement a balanced federal budget?

there will never be an equal amount of tax spending as tax revenue to support the government

what is the benefits-recieved principle

those who benefit from government goods and services should pay in proportion to the amount of benefits they recieve

what do economists use the AD/AS model for?

to analyze how economic policies may affect growth and stability

stop-gap funding

to keep the government running when congress has not finished the budget (short-term emergency spending legislation)

what do supply side economists believe

to reduce the economic role of the federal government to dampen production and slow growth (cut federal spending), lower federal taxes, and deregulation or laffer curve (removal of gov regulations on business activites or a possible relationship between federal income tax rates and tax revenues)

only five states do not have a general sales tax

true

what is fiscal policy

use of government spending and revenue collection measures to influence or stabalize the economy

what will happen when the baby boom generation starts to retire in large numbers

wages will increase due to a shift in labor supply