Economics Unit 17
Federal Spending
Fiscal Year - 12 month period assigned for accounting Mandatory Spending - fixed and required by law Discretionary Spending - expenses that can be raised or lowered by Congress
Taxes & You
April 15th is the deadline for filing your taxes from the previous year
Money Making Scams
Investment Check Pyramid Schemes
Regulatory Agency
a unit of government that makes and enforces standards for an industry or economic activity
Expansionary Fiscal Policy
promote economic activity by increasing gov't spending and cutting taxes, tries to increase consumer spending
Other Taxes
property taxes, sales tax, corporate income tax, excise tax, luxury tax, estate tax, inheritance tax
Property Insurance
protects the insured from financial losses due to destruction or damage to property or possessions
Renter's Insurance
protects the insured from loss of the contents of the dwelling itself... may be provided by a parent or guardian while an individual is still full time student or under age 18
Beneficiary
recipient of any policy proceeds if the insured person dies
Identity Theft
refers to types of crime in which someone wrongfully uses another person's personal data fraudulently or deceptively
Deregulation
removing gov't restrictions on firms' economic activity (fundamental difference between Democrats and Republicans)
Disability Insurance
replaces a portion of one's income if they become unable to work due to illness or injury
Multiplier Effect
ripple effect in which a change in spending by one person or business leads to additional changes or spending by another person or business
GDP Per Capita
(per person) based on the nation's real GDP divided by its population
Adam Smith's Principles of Taxation
1 Equity (Fair) 2 Certainty 3 Convenience (for the person paying) 4 Efficiency (use it right)
Revenue Scores
1 Individual Income taxes 2 Payroll taxes 3 Corporate Income taxes 4 Excise taxes if this does not cover the federal expenses, the gov't can increase the federal deficit
Impacts of Monetary and Fiscal Policies
1. time lags complicate policy making 2. economic forecast can mislead policy makers 3. the national debt can limit gov't spending 4. concerns about bankruptcy and future generations 5. the crowding out effect
Payroll Taxes
2nd largest share of federal income, tax on wages that a company pays
Unemployment Rate (US)
4-6%, not always accurate. doesn't factor in discouraged workers or people who settle for part time employment
Types of Inflation
Creeping Inflation (gradual) Hyperinflation (runaway inflation... Germany 1920's) Deflation (when prices go down over time)
Calculating GDP
Household Consumption + Business Investment + Government Purchases + Net Exports (exports-imports) C+I+G+(X-M)
Automobile Insurance Types
Liability Medical Payment Uninsured or under insured motorists Physical damage
Gov't Protects Economics
Protect Customers; safety in the purchasing of goods and services Protect Savers and Investors; FDIC, The SEC Protecting Workers; Department of Labor
Other Scams
Phishing online Tech support Unwanted software
Recession
a decline in economic activity lasting at least 6 months... GDP falls, wages falls, employment falls, profits and production falls
Tax
a payment required by the gov't on workers' income and business profits or added to the cost of some goods, services, and transactions
Depression
a prolonged economic downturn characterized by plunging real GDP and extremely high unemployment
Common Resources
a resource that everyone has access to; air, wildlife, highways. the problem is that people can hurt or destroy these
Tariff
a tax imposed on imported goods and services. Used to restrict trade, as they increase the price of imported goods and services, making them more expensive to consumers
Peril
an event which can cause a financial loss like fire, falling trees, lightning and others
Final Goods
any good that is ready for use by a consumer
Insurance
arrangement between an individual and and insurer to protect the individual at risk
The Fed
central bank of the US, influences policies with Congress and helps make monetary decisions
Monetary
central bank policy aimed at regulating the amount of money and circulation... relating to money
Constitution and the Economy
collects taxes provides for the general welfare borrow money regulate interstate and foreign commerce (business/trade) establish bankruptcy laws to coin money protect writings and discoveries of authors and investors (property rights)
Homeowners/Renters Insurance
combines property and liability insurance into one policy to protect a home from damage costs due to perils
Policyholder
consumer who purchases the policy
Life Insurance
contract between an insurer and policyholder specifying a sum to be paid to be a beneficiary upon the insured's death
Policy
contract between the individual and the insurer specifying the terms of the insurance arrangements
Uninsured Motorists Insurance
covers injury or damage to driver, passengers, or the vehicle caused by a driver with insufficient insurance
Liability Insurance
covers the insured if injuries or damages are caused to other people by law for automobiles
Market-Based Policies
deal with negative externalities, corrective tax. the gov't will create caps that dictate how much of something a business can do if it is negative
Premium
fee paid to the insurer to be covered under specified terms
Taxes...
fund the government, generates revenue, provides you with items
Intermediate Goods
goods that are used in the production of a good
Fiscal Policy
governments policies regarding taxing and spending... relating to public revenue
GDP Increase vs Decrease
increase - if any of the factors other than imports increases, GDP rises decrease - if any of the factors other than imports decrease, GDP decreases
High Unemployment
leads to the loss of potential output, those people and their families do not have income to use to purchase goods and services, don't pay income taxes
Quota
maximum amount of a resource a person can use or consume
Consumer Price Index
measures the "market basket" of consumer goods and services. changes in the average price of items change the overall cost of living. if the average price changes, it impacts other areas
Real GDP
measures the output of an economy in constant dollars
Nominal GDP
measures the output of an economy valued at today's prices
The Justice Dpt. & the FTC...
monitor mergers to prevent the creation of monopolies
Cyclical Unemployment
occurs during periods of decline
Gov't Regulation Issues
over regulation and deregulation
Toll
paying a fee to use a resource
Subsidies
payments to encourage people to do something, does not have to be repaid
Dependent
person who relies on someone else financially
The Gov't monitors businesses for...
price fixing bud rigging purchases market division
Health Insurance
provides protection against financial losses resulting from injury, illness, and disability
Supply Side of Economics
stimulate the overall supply.. cut business taxes and cut income taxes of high payers
Taxes in general...
tax burden falls on the side of the market that is elastic. producers/business raise the price of the good or service when they are taxed. elastic goods are sensitive to taxes. inelastic goods are not.
Literacy Rate
the % of people in a country who read or write. the higher the literacy rate, the higher the GDP of the country
The Reserve Requirement
the Fed requires that banks reserve a certain percentage of deposits on hand for immediate withdrawal by depositors
Tight Money Policy
the Fed wants to reduce the money supply, raise interest rates, and spending slows down... people want to save money and spend less
Deductible
the amount paid out of pocket by the policyholder for the initial portion of a loss before the insurance before the insurance coverage begins
Modern Times
the gov't manipulates the money supply to impact the economy
Command and Control Policies
the gov't will issue rule and policies to follow, this impacts businesses and prices
The Gov't and Well Being
the gov't: promotes economic stability, assists people living in poverty, social welfare programs. Some people criticize the gov't for assisting people and interfering with economics and social Darwinism
Tax Equity
the idea that the tax system should be fair; Ability to Pay vs. Benefits Recieved
Gross Domestic Product (GDP)
the market value of all goods and services produced in an economy. growing GDP is a sign of good economic health
Inflation
the percentage increase in the average price of goods and services from one month to the next. inflation is tracked with the consumer price index
Tax Rate
the percentage of income or value of a good that is paid in tax
Unemployment Rate
the percentage of the labor force seeking work that does not have employment
Eminent Domain
the power of the government to force a transfer of private property to the government for public use, the owner of the property is fairly compensated by the government for their property
Market Value
the price buyers are willing to pay for a good or service
Business Cycle
the recurring periods of growth and decline in economic activity that all economies experience
Tax Base
the thing that is taxed; income, goods, services, property, service
Regulation...
to influence behavior in desirable ways, the US Constitution creates laws and rules in order to regulate
Easy Money Policy
to stimulate or expand the economy, the Fed increases the money supply
Demand Side of Economics
to stimulate the economy, demand needs to be increased by cutting individual income taxes
Over Regulation
too much gov't involvement
Risk
uncertainty about a situation's income... leads to loss or damage
Unemployment Equation
unemployed / labor force x 100
GDP Misses
unpaid household and volunteer work, informal and illegal exchanges, counts some negatives as positives, ignores negative externalities, places no value on leisure time, nothing about income distribution
Contractionary Fiscal Policy
used to cool an overheated economy... cut gov't spending and raise taxes when buyers are demanding more goods than the economy can produce
Frictional Unemployment
when a person is "between jobs"
Proportional Tax (Flat)
when a person pays a high tax rate based on their income
Regressive Tax
when a person pays less taxes with the more money they make
Structural Unemployment
when a technology increases and reduces the demand for certain jobs or skills
Seasonal Unemployment
when businesses slow down or shut down during part of the year
Market Division
when businesses work together to divide markets to increase profits
Dead weight Loss
when cost to customers and producers is larger than the revenue it generates
The Crowding Out Effect
when gov't borrowing drives interest rates up so high that people are no longer willing to borrow money to invest in business
Government Failures
when the gov't gets involved and it leads to inefficient use of resources
Deficit Spending
when the gov't spends more money than it collects in revenue... helped the US in the Great Depression
Public Provisions
when the government helps finances something because it helps and improves the country
Fraud
wrongful or criminal deception intended to result in financial or personal gain
Individual Income Tax
you have to comply with the Tax Code (tax laws), you pay your taxes mainly as your employer withholds an amount of tax from each paycheck, your employer will send you a W-2 form each year which list your wages (earnings) and taxes withheld, if the IRS questions your taxes, they will audit it (formal in-depth review of your taxes, can result in large fine and imprisonment)