Macro Ch. 17

Rent Seeking

economic concept that occurs when an entity seeks to gain added wealth or income without any reciprocal contribution of productivity

What is the federal corporate tax rate in the United States?

21%

Regressive Tax

tax that imposes higher tax rates on people with lower incomes

Average Tax Rate

total tax payment divided by total income

Medicare and the Federal Insurance Contributions Act (FICA) taxes are paid by: -Workers. -Workers and employers. -Workers, employers, and self-employed individuals.

Workers, employers, and self-employed individuals

A dividend is -a portion of stock issuance reserved for executive compensation. -a portion of profits paid back to shareholders. -the portion of capital gains realized from a stock split. -the portion of earnings retained by the traded company.

a portion of profits paid back to shareholders

Alternative Minimum Tax (AMT)

a separate income tax code that began in 1969 to prevent the rich from not paying income taxes. It was not indexed to inflation and is now an extra tax burden on many upper middle class families

Which variable will NOT affect the amount of a Social Security recipient's benefits? -at what age he or she retires -his or her average earnings over his or her working life -how long he or she worked -his or her projected earnings during retirement

his or her projected earnings during retirement (Social Security benefits are defined by a complex formula depending on how many years a worker worked, what their average earnings were over their working life, whether or not they are married, what year they retire, and at what age)

The U. S. federal tax system is:

progressive (Households with incomes in the bottom 20% pay less than 5% of their total income in federal taxes, while households with incomes in the top 20% pay an effective tax rate of around 25%)

Who bears most of the cost of paying the corporate income tax?

shareholders and bondholders

Flat Tax

tax system that has a constant tax rate

Progressive Tax

tax that imposes higher tax rates on people with higher incomes

Current total government takes in from tax revenues

$3.3 trillion

Current total government spending

$6.6 trillion

Which three sources account for more than 90% of tax revenue?

-individual income tax -Social Security & Medicare taxes -corporate income tax

Individual income tax is an example of what type of tax?

Progressive

The largest amount of federal government spending goes to: -Social Security. -Defense. -Medicare.

Social Security

National Debt Held by the Public

all federal debt held by individuals, corporations, and governments other than the US federal government

A capital gain is -an increase in the productive capacity of a firm. -an increase in the market price of a firm's output. -an increase in the amount of capital a firm uses in production. -an increase in the value of an asset.

an increase in the value of an asset

Which tax constituted the largest share of total federal tax receipts in 2017? -individual income tax -excise taxes -Social Security and Medicare taxes -corporate income tax

individual income tax (the individual income tax constituted 50 percent of federal tax revenues)

The current national debt-to-GDP ratio of 75 percent for the United States: -is relatively low, historically speaking. -has been roughly constant since 1940. -is an historic high. -is high but not unprecedented.

is high but not unprecedented (the debt-to-GDP ratio rose above 100 percent as a result of World War II)

Milton Friedman pointed out that the real cost of a military draft is the fact that: -drafted soldiers have lower fatality rates on the battlefield than do volunteer soldiers. -a draft is administratively complicated and requires a lot of record keeping. -drafted soldiers have to be paid higher wages to compensate them for the inconvenience. -many people who are ill-suited to be soldiers are removed from their jobs or their studies.

many people who are ill-suited to be soldiers are removed from their jobs or their studies (as with a lot of things, it is the opportunity cost that is most important and most often overlooked)

What does it mean that Social Security is a pay‑as‑you‑go system?

revenue from the current Social Security tax is used to fund current payments

Balanced Budget

when government spending and taxes are equal

Budget Deficit

when the federal government spends more than it collects in taxes in a given time period

Budget Surplus

when the government receives more in taxes than it spends in a given time period

Between 1940 and 2015, what time period had the highest debt as a percentage of GDP for the United States? -1981-1990 -1991-2000 -1951-1960 -1941-1946

1941-1946 (World War II debt pushed the U.S. debt-to-GDP ratio to its highest level ever)

Which statement is TRUE? -Capital gains taxes are paid only when the assets are sold. -The alternative minimum tax is adjusted for inflation. -The real tax rates people pay are the same as the rates written into the tax code. -The income tax is a tax only on labor income.

Capital gains taxes are paid only when the assets are sold

Suppose the government increases taxes. What will happen to disposable income and consumer spending?

Disposable income falls and consumer spending will decrease

Which country has the lowest level of total government spending as a percentage of GDP? -Canada -Ireland -Australia -the United States

Ireland

Which statement is FALSE? -Most of the burden of the FICA tax falls on workers, not on employers. -The Alternative Minimum Tax was supposed to hit just a small group of the super-rich, but every year more and more people become subject to it since it was adjusted for inflation. -The original goal of the Alternative Minimum Tax was to make sure that it would not be possible for anyone to avoid all income tax. -The corporate income tax rate in United States is around 35 percent, one of the highest rates in the world.

The Alternative Minimum Tax was supposed to hit just a small group of the super-rich, but every year more and more people become subject to it since it was adjusted for inflation (The AMT has not been adjusted for inflation)

Which statement is TRUE? -The disadvantage of a flat tax is that moving to a flat tax would require lowering rates on the rich and raising rates on the middle class and poor. -Proponents of a flat tax argue that the efficiency advantages of a flat tax mean that even people who paid a lower tax rate would, with increased economic growth, pay more in total tax. -After all the deductions, exemptions, loopholes, and so forth, the U.S. tax system is regressive. -A flat tax has higher tax rates on people with lower incomes.

The disadvantage of a flat tax is that moving to a flat tax would require lowering rates on the rich and raising rates on the middle class and poor

Which statement is TRUE? -If current spending and tax trends continue, the federal debt will grow much slower than the economy over the long run -The U.S. government spending is a larger fraction of GDP than in most other developed countries -The federal debt-to-GDP ratio will rise in the future, because Americans are getting older on average and health care costs per person have been rising significantly -Compared to the United States, other developed countries spend a larger fraction of their GDP on health care costs

The federal debt-to-GDP ratio will rise in the future, because Americans are getting older on average and health care costs per person have been rising significantly

Which statement is TRUE? -The fiscal health of the federal government can be determined simply by looking at today's budget or today's deficit. -The growth in health care costs is quite similar throughout the developed world. -In recent decades, health care costs have been rising more than twice as fast as GDP. -By 2030 more than 40 percent of the U.S. population will be elderly.

The growth in health care costs is quite similar throughout the developed world

Which statement is TRUE? -The income tax is a tax on labor income and also on any income received from investments. -The real tax rates people pay are the same as the rates written into the tax code. -The alternative minimum tax is adjusted for inflation. -Capital gains taxes are paid only when the assets are purchased.

The income tax is a tax on labor income and also on any income received from investments

Which statement is FALSE? -The average interest rate on U.S. debt in 2017 was about 2 percent. -When federal government spending exceeds tax revenues, the national debt rises. -The deficit is the annual difference between federal spending and revenues. -The national debt held by the public is all federal debt held by individuals, corporations, and governments including the U.S. government.

The national debt held by the public is all federal debt held by individuals, corporations, and governments including the U.S. government (does not include U. S. government)

Government Debt

The total accumulated amount that the government has borrowed and not yet paid back over time

Which are reasons not to depend on Social Security as a retirement plan? Choose all that apply. -The average monthly payout is only $2000 per month. -There is no money in "your account." -You cannot collect full retirement benefits until you are 65. -The Social Security tax is "pay as you go."

There is no money in "your account" and the Social Security tax is "pay as you go."

Marginal Tax Rate

the tax rate paid on an additional dollar of income

National Debt

the total amount of money owed by the federal government at a given point

Deficit

yearly difference between what the government is spending and what the government is collecting in revenues; when spending > revenues, government must borrow to make up deficit