Fiscal Policy

Proportional tax (proportionate)

"Flat tax" constant % of income taken in taxes for all incomes

Progressive Tax

"Income tax" Larger % taken in taxes as income increases

Four characteristics of a good tax are?

-flexible -simple/clear -taxes collected when people can pay -stability

Keynesian Theory (Demand Side)

-gov. affect demand -invest in business, build transportation, schools-theory helps get out of depression, inflation, because jobs are provided. -gov. goes into debt -got people out of great depression

Supply-Side Economics (Reaganomics)

-tax cuts on business so they can pay more $ to workers -Raising supply -less government (taxes and spending)

Most well known classical economist?

Adam Smith

What is the main source of funding for public schools?

Federal dollars, state allocation, property tax

Fiscal Policy

Federal government effort to keep economy stable be reducing taxes and federal spending

What do taxes collected under the Federal Insurance Contribution Act (FICA) fund?

Social Security and Medicare

How is supply-side theory different from Keynesian theory?

Supply-side theory is based off of the belief that tax cuts help economy by raising aggregate supply. Tax cuts lead to businesses having more money to either pay their workers, invest in new technology, etc. If they pay more money to workers, and hire new workers then people have more money, which is a benefit to economy. When businesses invest in machinery, and technology that causes more supply to be produced, leading to also people demanding more goods. Keynesian economics are based off of the government investing into business, building schools, building parks, and investing money in different projects. The affect of Keynesian economy is that with all the new projects needed to be built, there are lots of new job opportunities, so unemployment rate goes down. Also this theory results in the government pulling the economy out of a recession or depression.

Explain how government spending (Keynesian fiscal policy) can trigger a chain of events that helps to improve the economy.

The government invests money in businesses, schools, transportation, and building projects. Investing in all these projects causes many new jobs for the people. This causes unemployment rate to go down. Also if the economy is in a recession it pulls the economy out of the recession because people now have money to use, leading to an increase in supply and demand, when the government invests in business. This leads the economy out of the trough and into the peak.

What is an entitlement?

a social welfare program providing benefits to people who meet certain eligibility requirements

What is a fundamental of Keynesian economics?

a. The government can use deficit spending to increase aggregate demand and pull the economy out of recession.This answer is correct. b. The government should reduce taxes to promote economic growth by increasing aggregate supply. c. The federal government should have a balanced budget every year to protect economic growth. d. The economy will only reach equilibrium and prosperity through the self-regulation of the free market. answer= a

In contrast with classical economics, Keynesian economics

a. takes a broader view of the economy. b. relies more heavily on the laws of supply and demand. Selected: c. more strongly emphasizes the importance of individual businesses to the overall health of the economy.This answer is incorrect. d. reduces the role of government. answer=a

All of the following are problems associated with high national debt EXCEPT that it

a.can slow growth of GDP b.reduces funds available for businesses to invest. c. makes investing in treasury bonds, notes, and bills very risky. d.makes it harder for gov. to fund projects answer=c

what is an example of discretionary spending?

education

Expansionary Policy is what?

fiscal policy like higher spending and tax cuts, that encourage economic growth

Contractionary Policy is what?

fiscal policy like lower spending and higher taxes to reduce economic growth.

excise tax

gov. tax on production or sale of good to promote certain behavior like carpooling, or quitting smoking

Regressive Tax

same amount money paid no matter income

supporters of supply-side theory believe that?

taxes have strong negative effect on economic output

The national debt rose during Ronald Reagan's term as President for all of the following reasons EXCEPT

the cost of running a war

When revenues exceed expenditures?

there is budget surplus