Econ Chapter 13/14

1. When does budget plan have to be passed? 2. What happens after Congress passes budget? 3. When does fiscal year run through?

1. Congress "must" pass a budget by the beginning of the fiscal year (October 1st). 2. Once Congress passes the budget, the details of spending outlined in the budget become law for that fiscal year. 3. The fiscal year for the federal government begins on October 1 and runs through September 30.

1. As a result of the increase in total spending... 2. When firms sell more goods...

1. Firms will sell more goods 2. they have to hire more workers to produce the additional goods. The unemployment rate goes down because more people are working.

1. People are more willing to work when.. 2. Lower tax rates do not necessarily result in lower tax revenues for the government because..

1. Taxes are lower 2. -Lower tax rates may provide an incentive to people to work more, and to earn more income. -If income rises by more than tax rates decline, tax revenue will increase for the government.

1. •complete crowding out.. 2. •incomplete crowding out..

1. increase in govt. spending = decrease in citizen spending 2. increase in govt. spending < decrease in citizen spending •Total spending increases

1. If the government lowers taxes... 2. This leads to.. 3. If the government raises taxes...

1. more money is available from earnings and total spending increases. 2. increased sales and hiring, reducing the unemployment rate. 3. people/firms have less to spend

1. what is The Laffer curve... 2. what does it show?...

1. named after economist Arthur Laffer, shows the relationship between tax rates and tax revenues. 2. shows that sometimes a decline in tax rates raise tax revenue and sometimes a decline in tax rates lower tax revenue.

1. A high unemployment rate is the result of.. 2. If the government increases spending or reduces taxes, or both... 3. An increase in government spending will

1. people not spending enough money in the economy. 2. consumers will have more money to spend. 3. mean more spending in the economy.

1. Stagflation may be a result of...

1. stop and go, on and off monetary policy

1. Inflation is the result of... 2. How to slow it down?.. 3. As a result of the decrease in total spending...

1. too much spending in the economy compared with the quantity of goods and services available for purchase. 2. reducing the amount that gov spends. 3. firms initially sell fewer goods. To reduce unwanted inventory, firms lower prices.

1. Who prepares budget process/ details... 2. What are estimates used to determine? 3. In the end, many details of the president's budget are...

1•"The president" prepares a recommended budget. His/her advisors actually make it. 2•Estimates are used to determine tax revenues. 3• changed to reflect compromise between the president and Congress.

Three income tax structures?...

Proportional- Same tax rate for every taxpayer. Tax rate remains constant as income rises. (Flat Tax) Progressive- Taxes rates rise as income rises Regressive- Taxes rates fall as income rises

what is stagflation...

The occurrence of inflation and high unemployment at the same time

What is sales tax?

collected by states, not by the federal government. Sales taxes vary among states.

Government can use expansionary fiscal policy to...

decrease an unemployment rate

A budget deficit is a situation in which...

federal government spending are greater than government tax revenues

value-added tax is..

• collected from firms at each stage in the production process and distribution process. •Some individuals propose this tax as an additional tax to the other taxes that currently exist. •Others suggest it as a tax that would replace the sales tax. •USED MOST OFTEN IN EUROPE AND ELSEWHERE IN THE WORLD.

Expansionary fiscal policy was necessary to...

• increase government spending without increasing tax revenues, allowing employment to rise. Every time the federal government runs a deficit, it is increasing the national debt.

two examples of fiscal policy and explain...

•Expansionary fiscal policy is an increase in government spending or a reduction in taxes. •Contractionary fiscal policy is a decrease in government spending or an increase in taxes.

The government collects three major federal taxes...

•Personal income tax is a tax people pay on their income. Personal income tax is paid to both the federal government and most state governments. •Corporate income tax is a tax corporations pay on their profits. Corporate income tax is also paid to both the federal government and most state governments. •Social Security tax is a tax paid to the federal government on income generated from employment. Half the tax is placed on employers, the other half on employees

How does federal gov spend money?

•Social security (21.8 percent) •National defense (17.9 percent) •Income security (14.5 percent) •Medicare (13.7 percent) •Net interest on the national debt (6.08 percent)

Property tax?

•This is a major revenue source for state and local governments.

how does stagflation occur?.... (2 reasons)

•When the Fed increases the money supply, prices rise. Inflation begins to set in, just as the Fed decides to reduce the money supply. This causes output to decrease and unemployment to increase. •Another cause of stagflation might be a market decrease in aggregate supply, such as that caused by a storm or a war.

The benefits-received principle...

•a person should pay in taxes an amount equal to the benefits she or he receives from government expenditures. •Excise taxes help achieve this goal.

Excise taxes?

•are placed on the purchase of certain goods, such as tobacco and gasoline. •The federal government and states collects excise taxes.

Fiscal policy deals with..

•changes the government makes in spending or taxation to achieve particular economic goals.

A budget surplus occurs when...

•federal government spending are less than federal government revenues.

Gov spending isn't worth it when...

•government spending program is not worth pursuing unless the benefits of that program outweigh the costs. •Spending programs that have greater costs than benefits sometimes get passed in Congress.

Crowding out occurs when..... (and example)...

•increases in government spending lead to reductions in private spending. •For example, if the government spends more on education, people may decide to spend less on education such as private schooling.

The ability-to-pay principle states that...

•people should pay taxes according to their abilities to pay. •The more income or wealth you have, the more taxes you should pay.