Public Finance

A(n) _____ denotes the total level or amount of something at a particular point in time. A(n) ___ is the change to the stock of that something after a period of time.

stock ;flow

national debt

the accumulation of all previous budget deficits and budget surpluses experienced by a government.

regressive tax

the average tax rate increases as income decreases and vise versa (tax rate decreases as income increases)

progressive tax

the average tax rate increases as income increases and vise versa (tax rate decreases as income decreases)

proportional tax

the average tax rate remains the same regardless if income increases or decreases.

The type of tax that is assessed is determined by using

the average tax rate.

average tax rate

the total amount of tax paid divided by taxable income and expressed as a percentage

Daniel has an annual taxable income of $25,000 and pays $2,500 in income taxes. Julia has a taxable income of $45,000 and pays $4,500 in income taxes. This tax is ___.

Proportional

Medicare taxes are an example of a:

proportional tax.

when the government is added to the circular flow model, it collects taxes and then

provides transfer payments and subsidies to firms and households.

a budget deficit occurs when

revenue is less than expenditures

subsidy

a payment made by the government that does not necessarily require an exchange of economic activity in return. Often take the form of payments to firms.

transfer payment

a payment made by the government that does not require an exchange of economic activity in return. Often take the form of payments to households.

budget deficit (TR < G)

a situation in which a government receives less revenue than it spends in a given fiscal year. (tax revenue < govt. expenditures)

balanced budget (TR = G)

a situation in which government receives exactly the same amount of revenue as it spends in a given fiscal year. (tax revenue = govt. expenditures)

budget surplus (TR > G)

a situation in which government receives more revenue than it spends in a given fiscal year. (tax revenue > govt. expenditures)

excise tax

a tax based on the number of units purchased, not the price paid for a good or service.

payroll tax

a tax on the amount of taxable income earned by an individual or firm that is used to pay for social security and medicare programs; also known as FICA tax

income tax

a tax on the amount of taxable income earned by an individual or firm.

sales tax

a tax on the price for a good or service

Suppose that tax revenue is $400 billion and that government spending is $450 billion. The budget is:

in deficit.

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

in surplus

Budget deficits are calculated and reported on an __________ basis

annual

An __________ tax rate equals the amount of tax paid divided by income and multiplied by 100.

average

The type of tax (progressive, regressive, or proportional) is determined by using the __________ tax rate

average

A budget is ________ when the government's revenue equals what the government spends in any given fiscal year.

balanced

A model that concisely describes how goods, services, resources, and money flow back and forth in an economy is the:

circular flow model.

The national __________ is the accumulation of deficits and surpluses over time.

debt

a tax is considered regressive when the average tax rate ____________ when income ___________.

decreases; increases or increases when income decreases

A budget _________ occurs when a government receives less revenue than it spends in any given fiscal year.

deficit

A budget _________ occurs when the government expenditures exceed government revenues in any given fiscal year.

deficit

The national debt is the accumulation of _________ and __________ over time.

deficits; surpluses

An average tax rate equals the amount of tax paid ________ by income and multiplied by 100.

divided

Which of the following is not an area of most federal spending?

education

In the circular flow model, households sell resources to and buy products from:

firms

In the circular flow model, the market economy creates:

flow of goods and services, resources and money.

An ___________ tax is one in which the average tax rate increases as income increases.

progressive

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

which of the following is a main source of revenue for local governments?

property tax collections

An __________ tax is one in which the average tax rate stays the same as income increases.

proportional

At the federal government level, which of the following are the main sources of income?

- Individual income taxes receipts - payroll taxes (social security, retirement receipts) - Corporate income tax receipts - Excise taxes

Revenue sources are different for federal, state, and local governments. (True or False)

True

a national debt decreases when

a budget surplus occurs and that money is used to retire debt