fiscal policy test review
sin tax
a relatively high tax designed to raise revenue while reducing consumption of a socially undesirable product
which of the following is most like a national sales tax
a value-added tax (VAT)
the progressive income tax is an example of
an automatic stabilizer
balanced budget
annual budget in which expenditures equal revenues
what is the main purpose of a sin tax
behavior adjustment
what gives the us government the right to collect taxes
constitution
policies that make production more efficient are favored by
demand and supply siders
what do severe economic downturns result in?
depression (decrease in business activity, widespread unemployment, and falling prices and wages)
if all production takes place within a country's border, the aggregate supply over one year will be
equal to the gdp
effective tax
fair and flexible, clear and simple, should be collected when most people can pay, and should be stable
the largest category of state spending is education
false
mandatory spending
federal spending authorized by law that continues without the need for annual approvals of congress
what do social security taxes pay for
for retirement and survivor programs or disability programs for the elderly
excise tax
general revenue tax levied on the manufacturer or sale of selected items
demand side economics
government is only way to offset the decline in spending by businesses, defecit spending, small amount of government spending, automatic stabalizers
keynesian economics
government spending and taxation policies suggested by john maynard keynes to stimulate the economy (lowers unemployment by stimulating aggregate demand) (government regulation)
how do production costs affect aggregate supply
higher production costs cause aggregate supply to decrease, lower production costs cause aggregate supply to increase
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
an example of intergovernmental revenue
idaho uses funds from the federal government for highway and hospital repairs
what is the major source of revenue for the federal government
individual income taxes (collected through the payroll withholding system, requires an employer to automatically deduct income taxes from a worker's paycheck and send it directly to the IRS)
how do most states finance their capital budgets
intergovenmental revenues (funds collected by one level of government that are distributed to another level of government for expenditures. mostly comes from federal gov to help fuld welfare, education, highways, health, and hospitals) others include (employee retirement, sales taxes, individual income taxes)
according to keynes, which sector was most responsible for the instability that led to the great depression
investment
what is a expansionary fiscal policy
involves increasing government spending, transfer payments, or decreasing taxes to increase AS to expand output and the economy (recessional economy) (spending > tax revenues) (budget deficit)
what is a contractionary fiscal policy
involves increasing withdrawals from the economy by reducing government spending, transfer payments, or raising taxes to decrease AD to contract ouput and the economy (inflationary economy) (spending < tax revenues) (budget surplus)
the most common way for governments to covre budget defecits is by
issuing debt
what are the problems caused by a large national debt
it decreases the amount of money available to be borrowed or invested by businesses , government must pay interest to bondholders
how did keynes feel about budget defecits
it is unfortunate but necessary to stop further declines in economic activity (when economy recovers its tax collections would rise and the debt can be paid back)
what are the arguments against a constitutional amendment requiring a balanced budget?
it would make it harder to respond to rapid economic changes, the national debt will not change
medicaid
joint federal-state medical insurance program for low-income people
the concept of fiscal policies are derived from
keynesian economics
what is macroeconomics concerned with
large economic sectors
elementary schools, police departments, and electrical service are typically paid for by
local government
president reagen tried to reduce government spending by
lowering taxes
means-tested program
one for hwich those with higher incomes get lower benefits: criteria to be accepted (household income, size, and composition)
per capita
per person basis, total divided by population
what does the debt ceiling do
premits borrowing for expenditures that have already been authorized by congress and the president
what is the maximum output an economy can sustain over a period of time
productive capacity
capital gains tax
profits from the sale of an asset held for twelve months or longer
entitlement
program or benefit using established eligibility requirements to provide health care, food, or income supplements to individuals
what are automatic stabilizers?
programs that automatically provides benefits to offset a change in people's incomes; unemployment, insurance, and entitlement programs (demand-side policy) (progressive income tax)
after intergovernmental revenue, the largest source of revenue for local governments is
property tax
medicare
provides an insurance plan that covers major hospital costs, offers optional insurance that provides additional coveerage for doctor and labaratory fees, outpatient services, and some medical equipment costs
advocates of supply side economics argue that spending by the fedeal government
slows economic growth
which of the following is the single largest federal expenditure
social security
gift tax
tax donations of money or wealth that is paid by the donor
proportional tax
tax in which percentage of income paid in tax is the same regardless of the level of income
estate tax
tax on the transfer of property when a person dies
regressive tax
tax where percentage of income paid in tax goes down as income rises
progressive tax
tax where percentage of income paid in tax rises as level of income rises
fiscal policy may involve
taxing corporations
private sector
that part of the economy made up of private individuals and businesses
who or what is behind an automatic stabilizer
the federal government
incidence of a tax
the final burden of the tax (whether the consumer or the producer is left paying for the tax)
what makes the federal income tax a progressive tax?
the higher the income a person has the higher percentage of income paid in tax rises
the concept of aggregate supply assumes that
the money supply and price levels are fixed
how is the federal budget put together
the president's office of management and budget is responsible, however congress must approve. house of representatives then seperae the budget into 13 major expenditure categories and prepare appropriation bills (authorizing spending for certain purposes)
which of the following describes the idea of the laffer curve as it is expressed mathematically
the ratios show the relationship between federal income tax rates and revenue
national debt
the total amount borrowed from investors to finance the government's defecit spending
Keyne's explanation for the great depression
the unstable spending by the businesses, or investment sector was to blame for the decline of GDP during those years
classical economics
theory that free markets operate under the laws of supply and demand and can and will regulate themselves (private sector independence)
why is it difficult to implement a balanced federal budget?
there will never be an equal amount of tax spending as tax revenue to support the government
what is the benefits-recieved principle
those who benefit from government goods and services should pay in proportion to the amount of benefits they recieve
what do economists use the AD/AS model for?
to analyze how economic policies may affect growth and stability
stop-gap funding
to keep the government running when congress has not finished the budget (short-term emergency spending legislation)
what do supply side economists believe
to reduce the economic role of the federal government to dampen production and slow growth (cut federal spending), lower federal taxes, and deregulation or laffer curve (removal of gov regulations on business activites or a possible relationship between federal income tax rates and tax revenues)
only five states do not have a general sales tax
true
what is fiscal policy
use of government spending and revenue collection measures to influence or stabalize the economy
what will happen when the baby boom generation starts to retire in large numbers
wages will increase due to a shift in labor supply