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