ECON 205 Public Finance

A(n) _________ denotes the total level or amount of something at a particular point in time. On the other hand, a(n) __________ is the change to the stock of that something over a period of time.

stock, flow

A(n) _____ denotes the total level or amount of something at a particular point in time. A(n) ___ is the change to the stock of that something after a period of time.

stock; flow

A budget ____________ occurs when a government receives more revenue than it spends in any given fiscal year.

surplus

Households and firms receive public goods and services in exchange for the net _________ they pay.

taxes

The government uses the revenue from net ____________ to make monetary payments or expenditures in the resource and product markets.

taxes

Suppose that the government runs a budget deficit of $75 billion in year 1. Assume that the year began with a national debt of $0. In year 2 the government ran a budget surplus of $50 billion. In year 3, the government spent $200 billion more than it collected in taxes. The debt is $______ billion.

225

Daniel has an annual taxable income of $25,000 and pays $2,500 a year in income taxes. Julia earns $45,000 in taxable income a year and pays $5,000 in income taxes. This tax is:

progressive.

The main source of income for local governments is __________ taxes.

property

A(n) ___________ tax is one in which the average tax rate stays the same as income increases.

proportional

Daniel has an annual taxable income of $25,000 and pays $2,500 in income taxes. Julia has a taxable income of $45,000 and pays $4,500 in income taxes. This tax is ___.

proportional

Consider the following statement: "A system where everyone pays the same percentage in taxes is fair." This person supports:

proportional taxes.

The function of firms in the circular flow model is to _____ resources and _____ products.

purchase; sell

A(n) ____________ tax is one in which the average tax rate decreases as income increases.

regressive

Sales taxes are ____________ in that the tax rate falls as the amount taxed rises.

regressive

If the demand for loanable funds increases, interest rates ___________ , which can have big effects on consumers.

rise

At the state government level, the main sources of income are:

sales and excise taxes. state individual and corporate income taxes.

Interest on the national debt is a major expenditure for the federal government which indicates that the federal government:

spends more than it receives in revenue forcing it to borrow to finance its deficits.

A(n) ___________ tax rate equals the amount of tax paid divided by income and multiplied by 100.

average

The type of tax (progressive, regressive, or proportional) is determined by using the __________ tax rate.

average

A budget is ___________ when the government's revenue equals what the government spends in any given fiscal year.

balanced

The government may have a ___________ budget or a budget __________ or ___________.

balanced, deficit, surplus

The federal government finances its deficits via

borrowings

The type of tax that is assessed is determined:

by using the average tax rate.

The national _____ is the accumulation of deficits and surpluses over time.

debt

A regressive tax is one in which the average tax rate ____________ (increases/decreases) as income increases.

decreases

A budget __________ occurs when the government expenditures exceed government revenues in any given fiscal year.

deficit

The national debt is the accumulation of _________ and ________ over time.

deficits, surpluses

The average tax rate:

determines whether the tax imposed is regressive, progressive, or proportional.

In choosing which type of tax to use, a government takes into consideration many factors including:

discouraging or encouraging certain behavior.

A budget is balanced when the government's revenue ___________ its expenditure in a given fiscal year.

equals

Ignoring the states, _________ income taxes are progressive.

federal

In the circular flow model, households sell resources to and buy products from:

firms

To provide national defense, the __________ needs resources such as labor and final goods such as military products.

government

Suppose that tax revenue is $300 billion and that government spending is $250 billion. The budget is:

in surplus.

Suppose that tax revenue is $350 billion and that government spending is $250 billion. The budget is:

in surplus.

A progressive tax is one in which the average tax rate ___________ as income increases.

increases

When the government needs to borrow money, it _________ the demand for loanable funds in the economy.

increases

The two parties involved in the simple circular flow model are:

households and businesses.

The circular flow model shows how:

households and firms interact in two key markets.

An opportunity cost is associated with the _________ payments made on the national debt.

interest

f the government had no national debt, it would not have to make ________ payments, and other things could be done with these funds.

interest

Most economists prefer measuring the deficit relative to GDP because:

it allows a comparison across countries. it allows a comparison across time.

A budget deficit occurs when a government receives ________ revenue than it spends in any given fiscal year.

less

Which of the following is not an area of most federal spending?

Education

Sources of revenue are the same for federal, state, and local governments.

False

Most economists prefer measuring the deficit relative to _______ because it places the deficit in better context and allows a comparison across time or across governments from different countries.

GDP

Funds that firms pay for resources are costs to firms but they represent which of the following type of flow to households?

Income

State governments spend money on all of the following except:

National Defense

At the federal government level, which of the following are the main sources of income?

Payroll taxes Individual and corporate income taxes Excise taxes

_______________ payments and subsidies are payments the government makes to households and businesses that do not require an exchange of productive activity.

Transfer

Most local governments receive financial support from the federal and state levels. (True or False)

True

Revenue sources are different for federal, state, and local governments. (True or False)

True

A(n) ____________ cost is associated with the interest payments made on the national debt.

opportunity

Suppose that the government runs a budget deficit of $75 billion in year 1. Assume that the year began with a national debt of $25 billion. In year 2 the government ran a budget surplus of $50 billion. In year 3, the government spent $100 billion more than it collected in taxes. The debt is $ _______ billion.

150

A budget surplus occurs when a government receives ________ revenue than it spends in any given fiscal year.

more

More often than not, the federal government spends ___ it receives, forcing it to borrow to finance its deficits.

more than

An example of a public good provided by the government is:

national defense.

Monetary payments in the form of ____________ taxes flow to the government from households and businesses.

net