Economics Test 4

balanced budget

A budget in which revenues are equal to spending.

Import

A good that is brought in from another country for sale

Export

A good that is sent to another country for sale

Medicare

A national health insurance program that helps pay for health care for people over age 65 or who have certain disabilities

Infant industry

A new industry

Inside lag

Delay in implementing monetary policy

Medicaid

Entitlement program that benefits low-income families, some people with disabilities, and elderly people in nursing homes

Interest rates

Money earned by deposited funds

Social security

Old-Age, Survivors, and Disability Insurance

Specialization

The concentration of the productive efforts of individuals and firms on a limited number of activities

Functions of the banks that make up the core of the Federal Reserve System.

The district banks that make up the core of the Federal Reserve System carry out several important functions including providing banking and fiscal services to the federal government, providing banking services to member and nonmember banks, regulating the banking industry, and tracking and managing the national money supply to meet current demand and to stabilize the economy.

Trade barriers take three common forms. Name and describe them.

The three common forms of trade barriers are import quotas, voluntary export restraints, and tariffs. Import quotas are the limit on the amount of a good that can be imported. Voluntary export restraints is a self-imposed limitation on the number of products that are shipped to a particular country. A country voluntarily decreases its exports in an attempt to reduce the chances that the importing country will set up trade barriers. Tariffs are taxes on imported goods. Both individuals and businesses have to pay tariffs.

Outside lag

The time it takes for monetary policy to have an effect

Federal Reserve District

The twelve banking districts created by the Federal Reserve Act

What was the reasoning behind the creation of the Federal Reserve System?

To help provide solutions to to the nation's banking problems, and avert bank runs or panics.

Net worth

Total assets minus total liabilities

The Federal Reserve has three tools for adjusting the amount of money in the economy. List them.

open market operations, discount rate, and money creation.

List the arguments in favor of protectionism

protecting workers' jobs, protecting infant industries, and safeguarding national security.

What are characteristics of a good tax?

simplicity, efficiency, certainty, and equity.

Regression

tax for which the percentage of income paid in taxes decreases as income increases

Proportional tax

A tax for which the percentage of income paid in taxes remains the same for all income levels

Customs duty

A tax on certain items purchased abroad

Tariff

A tax on imported goods

WTO

A worldwide organization whose goal is freer global trade and lower tariffs

NAFTA

Agreement that will eliminate all tariffs and other trade barriers between Canada, Mexico, and the Unite States

Appreciation

An increase in the value of a currency

Explain what is meant by a strong or a weak dollar. How does a strong or weak dollar affect prices of imports and exports?

An increase in the value of a currency is called appreciation. When a currency appreciates, it becomes "stronger." A decrease in the value of a currency is called depreciation. A dollar that is deprecation or "weakening" is considered a weak dollar. A strong dollar can cause that nation's products to become more expensive in other countries. However, a strong dollar means that imported goods will be less expensive for that country. On the other hand, a weak dollar causes that nation's products to become cheaper to other nations. At the same time, other nations' products become more expensive and imports to that country will likely decrease.

Taxable income

Income on which tax must be paid; total income minus exemptions and deductions

Revenue

Income received by a government from taxes and nontax sources

What are inside lags and why do they occur?

Inside lags are delays in implementing monetary policy. They occur for two reasons. First, it takes time to identify and recognize a problem. Second, one a problem has been recognized, it can take additional time to enact appropriate policy.

Prime rate

Rate of interest banks charge on short-term loans to their best customers

Personal exemptions

Set amount that you subtract from your gross income for yourself, your spouse, and any dependents

Entitlements

Social welfare program that people are "entitled" to if they meet certain eligibility requirements.

Absolute advantage

The ability to produce more of a given product using a given amount of resources.

Monetary policy

The actions the Federal Reserve takes to influence the level of real GDP and the rate of inflation in the economy

Open market operations

The buying and selling of government securities to alter the supply of money

Balance of trade

The relationship between a nation's imports and exports

How would you describe the balance of trade in the United States? ?

Unbalanced. The United States is both the world's leading exporter and importer, but we import far more than we export leading to a trade deficit.

Deductions

Variable amounts that you can subtract, or deduct, from your gross income.

List four areas on which state tax dollars are spent.

education, public safety, arts and recreation, and highways and transportation