Economics Unit 17

Federal Spending

Fiscal Year - 12 month period assigned for accounting Mandatory Spending - fixed and required by law Discretionary Spending - expenses that can be raised or lowered by Congress

Taxes & You

April 15th is the deadline for filing your taxes from the previous year

Money Making Scams

Investment Check Pyramid Schemes

Regulatory Agency

a unit of government that makes and enforces standards for an industry or economic activity

Expansionary Fiscal Policy

promote economic activity by increasing gov't spending and cutting taxes, tries to increase consumer spending

Other Taxes

property taxes, sales tax, corporate income tax, excise tax, luxury tax, estate tax, inheritance tax

Property Insurance

protects the insured from financial losses due to destruction or damage to property or possessions

Renter's Insurance

protects the insured from loss of the contents of the dwelling itself... may be provided by a parent or guardian while an individual is still full time student or under age 18

Beneficiary

recipient of any policy proceeds if the insured person dies

Identity Theft

refers to types of crime in which someone wrongfully uses another person's personal data fraudulently or deceptively

Deregulation

removing gov't restrictions on firms' economic activity (fundamental difference between Democrats and Republicans)

Disability Insurance

replaces a portion of one's income if they become unable to work due to illness or injury

Multiplier Effect

ripple effect in which a change in spending by one person or business leads to additional changes or spending by another person or business

GDP Per Capita

(per person) based on the nation's real GDP divided by its population

Adam Smith's Principles of Taxation

1 Equity (Fair) 2 Certainty 3 Convenience (for the person paying) 4 Efficiency (use it right)

Revenue Scores

1 Individual Income taxes 2 Payroll taxes 3 Corporate Income taxes 4 Excise taxes if this does not cover the federal expenses, the gov't can increase the federal deficit

Impacts of Monetary and Fiscal Policies

1. time lags complicate policy making 2. economic forecast can mislead policy makers 3. the national debt can limit gov't spending 4. concerns about bankruptcy and future generations 5. the crowding out effect

Payroll Taxes

2nd largest share of federal income, tax on wages that a company pays

Unemployment Rate (US)

4-6%, not always accurate. doesn't factor in discouraged workers or people who settle for part time employment

Types of Inflation

Creeping Inflation (gradual) Hyperinflation (runaway inflation... Germany 1920's) Deflation (when prices go down over time)

Calculating GDP

Household Consumption + Business Investment + Government Purchases + Net Exports (exports-imports) C+I+G+(X-M)

Automobile Insurance Types

Liability Medical Payment Uninsured or under insured motorists Physical damage

Gov't Protects Economics

Protect Customers; safety in the purchasing of goods and services Protect Savers and Investors; FDIC, The SEC Protecting Workers; Department of Labor

Other Scams

Phishing online Tech support Unwanted software

Recession

a decline in economic activity lasting at least 6 months... GDP falls, wages falls, employment falls, profits and production falls

Tax

a payment required by the gov't on workers' income and business profits or added to the cost of some goods, services, and transactions

Depression

a prolonged economic downturn characterized by plunging real GDP and extremely high unemployment

Common Resources

a resource that everyone has access to; air, wildlife, highways. the problem is that people can hurt or destroy these

Tariff

a tax imposed on imported goods and services. Used to restrict trade, as they increase the price of imported goods and services, making them more expensive to consumers

Peril

an event which can cause a financial loss like fire, falling trees, lightning and others

Final Goods

any good that is ready for use by a consumer

Insurance

arrangement between an individual and and insurer to protect the individual at risk

The Fed

central bank of the US, influences policies with Congress and helps make monetary decisions

Monetary

central bank policy aimed at regulating the amount of money and circulation... relating to money

Constitution and the Economy

collects taxes provides for the general welfare borrow money regulate interstate and foreign commerce (business/trade) establish bankruptcy laws to coin money protect writings and discoveries of authors and investors (property rights)

Homeowners/Renters Insurance

combines property and liability insurance into one policy to protect a home from damage costs due to perils

Policyholder

consumer who purchases the policy

Life Insurance

contract between an insurer and policyholder specifying a sum to be paid to be a beneficiary upon the insured's death

Policy

contract between the individual and the insurer specifying the terms of the insurance arrangements

Uninsured Motorists Insurance

covers injury or damage to driver, passengers, or the vehicle caused by a driver with insufficient insurance

Liability Insurance

covers the insured if injuries or damages are caused to other people by law for automobiles

Market-Based Policies

deal with negative externalities, corrective tax. the gov't will create caps that dictate how much of something a business can do if it is negative

Premium

fee paid to the insurer to be covered under specified terms

Taxes...

fund the government, generates revenue, provides you with items

Intermediate Goods

goods that are used in the production of a good

Fiscal Policy

governments policies regarding taxing and spending... relating to public revenue

GDP Increase vs Decrease

increase - if any of the factors other than imports increases, GDP rises decrease - if any of the factors other than imports decrease, GDP decreases

High Unemployment

leads to the loss of potential output, those people and their families do not have income to use to purchase goods and services, don't pay income taxes

Quota

maximum amount of a resource a person can use or consume

Consumer Price Index

measures the "market basket" of consumer goods and services. changes in the average price of items change the overall cost of living. if the average price changes, it impacts other areas

Real GDP

measures the output of an economy in constant dollars

Nominal GDP

measures the output of an economy valued at today's prices

The Justice Dpt. & the FTC...

monitor mergers to prevent the creation of monopolies

Cyclical Unemployment

occurs during periods of decline

Gov't Regulation Issues

over regulation and deregulation

Toll

paying a fee to use a resource

Subsidies

payments to encourage people to do something, does not have to be repaid

Dependent

person who relies on someone else financially

The Gov't monitors businesses for...

price fixing bud rigging purchases market division

Health Insurance

provides protection against financial losses resulting from injury, illness, and disability

Supply Side of Economics

stimulate the overall supply.. cut business taxes and cut income taxes of high payers

Taxes in general...

tax burden falls on the side of the market that is elastic. producers/business raise the price of the good or service when they are taxed. elastic goods are sensitive to taxes. inelastic goods are not.

Literacy Rate

the % of people in a country who read or write. the higher the literacy rate, the higher the GDP of the country

The Reserve Requirement

the Fed requires that banks reserve a certain percentage of deposits on hand for immediate withdrawal by depositors

Tight Money Policy

the Fed wants to reduce the money supply, raise interest rates, and spending slows down... people want to save money and spend less

Deductible

the amount paid out of pocket by the policyholder for the initial portion of a loss before the insurance before the insurance coverage begins

Modern Times

the gov't manipulates the money supply to impact the economy

Command and Control Policies

the gov't will issue rule and policies to follow, this impacts businesses and prices

The Gov't and Well Being

the gov't: promotes economic stability, assists people living in poverty, social welfare programs. Some people criticize the gov't for assisting people and interfering with economics and social Darwinism

Tax Equity

the idea that the tax system should be fair; Ability to Pay vs. Benefits Recieved

Gross Domestic Product (GDP)

the market value of all goods and services produced in an economy. growing GDP is a sign of good economic health

Inflation

the percentage increase in the average price of goods and services from one month to the next. inflation is tracked with the consumer price index

Tax Rate

the percentage of income or value of a good that is paid in tax

Unemployment Rate

the percentage of the labor force seeking work that does not have employment

Eminent Domain

the power of the government to force a transfer of private property to the government for public use, the owner of the property is fairly compensated by the government for their property

Market Value

the price buyers are willing to pay for a good or service

Business Cycle

the recurring periods of growth and decline in economic activity that all economies experience

Tax Base

the thing that is taxed; income, goods, services, property, service

Regulation...

to influence behavior in desirable ways, the US Constitution creates laws and rules in order to regulate

Easy Money Policy

to stimulate or expand the economy, the Fed increases the money supply

Demand Side of Economics

to stimulate the economy, demand needs to be increased by cutting individual income taxes

Over Regulation

too much gov't involvement

Risk

uncertainty about a situation's income... leads to loss or damage

Unemployment Equation

unemployed / labor force x 100

GDP Misses

unpaid household and volunteer work, informal and illegal exchanges, counts some negatives as positives, ignores negative externalities, places no value on leisure time, nothing about income distribution

Contractionary Fiscal Policy

used to cool an overheated economy... cut gov't spending and raise taxes when buyers are demanding more goods than the economy can produce

Frictional Unemployment

when a person is "between jobs"

Proportional Tax (Flat)

when a person pays a high tax rate based on their income

Regressive Tax

when a person pays less taxes with the more money they make

Structural Unemployment

when a technology increases and reduces the demand for certain jobs or skills

Seasonal Unemployment

when businesses slow down or shut down during part of the year

Market Division

when businesses work together to divide markets to increase profits

Dead weight Loss

when cost to customers and producers is larger than the revenue it generates

The Crowding Out Effect

when gov't borrowing drives interest rates up so high that people are no longer willing to borrow money to invest in business

Government Failures

when the gov't gets involved and it leads to inefficient use of resources

Deficit Spending

when the gov't spends more money than it collects in revenue... helped the US in the Great Depression

Public Provisions

when the government helps finances something because it helps and improves the country

Fraud

wrongful or criminal deception intended to result in financial or personal gain

Individual Income Tax

you have to comply with the Tax Code (tax laws), you pay your taxes mainly as your employer withholds an amount of tax from each paycheck, your employer will send you a W-2 form each year which list your wages (earnings) and taxes withheld, if the IRS questions your taxes, they will audit it (formal in-depth review of your taxes, can result in large fine and imprisonment)