Economics Unit 7

Tax return

A form used to file income taxes.

simplicity, efficiency, certainty, and equity

A good tax should have what four characteristics?

Council of economic advisors

A group of three respected economists that could advise the president on economic policy.

Individual income tax

A person's earnings.

Taxable income

A person's total income minus exemptions and deductions.

Tax

A required payment to a local, state, or national government.

Regressive tax

A tax for which the percentage of income paid in taxes decreases as income increases.

Progressive tax

A tax for which the percentage of income paid in taxes increases as income increases.

Proportional tax

A tax for which the percentage of income paid in taxes remains the same for all income levels.

Gift tax

A tax on money or property that one living person gives to another.

Estate tax

A tax on the estate, or total amount of money and property, of a person who has died.

Fiscal year

A twelve month period that isn't necessarily the same as January to december.

Federal budget

A written document indicating the amount of money the government expects to receive for a certain year and authorizing the amount the government can spend that year.

Balanced budget

Budget in which revenues are equal to spending

increasing government spending and cutting taxes

What are two types of expansionary policies?

increased deficits

What can be expected when members of the baby boom generation begin to retire in large numbers?

the elasticity of demand of the product taxed

What determines the incidence of a tax?

that taxes have a strong negative influence on economic output

What do supporters of supply-side economics believe?

Social Security and Medicare

What do taxes collected under the Federal Insurance Contribution Act (FICA) fund?

The tax is fairly assessed.

What does the "equity" of a tax mean?

the U.S. Constitution

What gives the U.S. government the right to collect taxes?

Your employer sends it to the federal government to help pay your income tax bill.

What happens to the money that your employer withholds from your paycheck?

The percentage of tax rises.

What happens to the percentage of an income that is taxed when income rises and the tax is a progressive one?

You are loaning money to the government.

What is occurring when you buy a United States Savings Bond?

Social Security

What is the largest category of federal spending?

sales and individual income taxes

What is the major source of revenue for most state governments?

to keep the government running when the budget has not been approved

What is the purpose of "stop-gap funding"?

a big federal budget deficit

What leads directly to the crowding-out effect?

when Congress and the President cannot agree on temporary funding

What will lead directly to a government "shut down"?

a tax incentive

What would best explain the higher purchase price of an SUV that gets low gas mileage compared to a fuel-efficient sedan, even though the cost of manufacturing both vehicles is the same?

Balanced budget

When the federal government's revenues equal its expenditures in any given year.

hyperinflation

When the government attempts to cover large deficits by creating more money, what is the probable result called?

excise tax

When you drive away from the gas pump, what type of tax have you just paid?

Keynesian economics

Which economic school of thought would explain how massive government expenditures during World War II sharply moved the country out of the Great Depression?

education

Which is an example of discretionary spending?

Franklin D. Roosevelt

Which of the following Presidents increased top marginal income tax rates during his term in office?

defense, education, national parks, and environmental cleanup

Which of the following are examples of discretionary spending?

a decrease in government spending

Which of the following did not contribute to the federal budget surplus in the 1990s?

The President and Congress pass a new 2-cent-per-gallon gasoline tax.

Which of the following is a contractionary fiscal policy?

Social Security tax

Which of the following is an example of a tax authorized under the Federal Insurance Contributions Act (FICA)?

cutting taxes

Which of the following is an example of expansionary fiscal policy?

that it makes investing in treasury bonds, notes, and bills very risky

Which of the following is not a problem associated with high national debt?

the costs of running a war

Which of the following is not a reason the national debt rose during Ronald Reagan's term as President?

the public library where you find sources for a research paper

Which of the following is not an example of state spending?

so that the government can pay bills as they come due

Which of the following is one reason the federal government collects income taxes from every paycheck as a person earns wages?

local property taxes

Which of the following is probably the main source of funding for your school?

There is a recession.

Which of the following situations could cause a budget deficit for the federal government?

The government issues treasury bonds and spends the revenue on a new highway system.

Which of the following statements best describes a stage in the crowding-out effect?

Most states require a balanced budget for state spending.

Which of the following would be an accurate statement about achieving a balanced budget?

the consumer

Who generally bears most of a sales tax when the demand for the good taxed is inelastic?

to encourage growth and try to stop or prevent a recession

Why does the government sometimes use an expansionary fiscal policy?

The baby boomer generation will qualify for both programs.

Why is Social Security and Medicare spending expected to increase further in the near future?

Two-thirds of all government spending is on entitlements, which the government cannot easily alter.

Why is it difficult for the federal government to increase or decrease spending?

regressive tax

Your department store receipt says that you paid a 5% sales tax on sports equipment. This sales tax is an example of a _____.

Corporate income tax

a tax on the value of a company's profits

Tax exempt

not subject to taxes

Deductions

Variable amounts that you can subtract from your gross income.

Hyperinflation

Very high inflation.

property taxes

What are the main sources of revenue for local governments?

Mandatory spending

Money that lawmakers are required to spend on certain programs or to use for interest payments on the national debt.

Medicare

National health insurance program that helps pay for healthcare for people over age 65.

Budget deficit

Occurs in any year when expenditures exceed revenues.

Budget surplus

Occurs in any year where revenues exceed expenditures.

state and local government policies might interfere with the intended outcome of federal policies

"Coordinating fiscal policy," one of the five limits of fiscal policy, can be difficult because _____.

wait for the economy to achieve equilibrium

After the fall of the economy in 1929, what did classical economists believe to be the solution to the Great Depression?

exports must not be taxed

All of the following are constitutional limits on the power to tax except that _____.

the need for discretionary spending

All of the following are reasons why it is difficult to implement balanced fiscal policy except _____.

Tax assessor

An official that determines the value of a property.

20 percent

Approximately what percentage of the national budget is spent on defense?

Keynesian economics

Basically the idea that the economy is composed of three sectors-individuals, business, and government-and that government actions can make up for changes in the other two.

Medicaid

Benefits low income families, some people with disabilities, and elderly people in nursing homes.

Appropriations bill

Bills to authorize specific spending.

Treasury note

Cover periods from two to ten years.

Crowding-out effect

Federal borrowing crowds-out private borrowing by making it harder for private businesses to borrow.

Contractionary policies

Fiscal policies intended to decrease output.

Expansionary policies

Fiscal policies that try to increase output.

public school systems

For which expense do state governments provide financial help to their local governments?

Social security

Originally a retirement fund now also provides benefits for family members of wage earners and to people whose disabilities keep them from working.

Operating budget

Pays for day-to-day spending.

Capital budget

Pays for major capital, or investment, spending.

Congressional budget office

Gives congress independent economic data to help with its decisions.

Keynesian economics uses government to increase aggregate demand through both spending and tax cuts. Supply-side economics tries to increase aggregate supply through tax cuts.

How do Keynesian economics and supply-side economics compare and contrast?

long-term borrowing or sale of bonds

How do most states finance their capital budget?

Only the operating budget must be balanced.

How does the concept of a balanced budget apply to state government?

The higher the income a person has, the higher the percentage that person pays in tax.

How is the federal income tax a progressive tax?

Those who receive the benefits the tax provides are the people who pay the tax.

How would you describe a tax that is assessed according to the benefits-received principle?

takes a broader view of the economy

In contrast with classical economics, Keynesian economics _____.

Demand-side economics

Involves changing demand to help the economy.

Personal property

Jewelry, furniture, boats.

high inflation during the 1970s

Keynesian economics failed to deal successfully with _____.

Real property

Land and buildings.

Treasury bond

May be issued for as long as 30 years.

Office of management and budget

Responsible for managing the federal government's budget.

Personal exemptions

Set amounts that you subtract from your gross income for yourself, your spouse, and any dependents.

Treasury bill

Short term bonds that must be repaid within a year or less.

Entitlements

Social welfare programs that people are "entitled" to if they meet certain eligibility requirements, such as being at a certain income level or age.

Discretionary spending

Spending about which government planners can make choices.

Supply-side economics

Stresses the influence of taxation on the economy.

Withholding

Taking payments out of your pay before you receive it.

Automatic stabilizer

Taxes and transfer payments.

FICA

Taxes authorized under the federal insurance contributions act.

Tariff

Taxes on imported goods.

tax revenues

The Laffer curve predicts the effects of changes in the tax rate on which of the following?

the producer

The demand for cable television is relatively elastic, because if the price gets too high, people will rent DVDs or videos instead of watching cable. Who is likely to bear the incidence of a 10 percent tax on cable television?

Sales tax

The dollar value of a good or service being sold.

mandatory spending

The federal government spends the largest amount of its budget on Social Security, which is an example of _____.

Incidence of a tax

The final burden of a tax.

Multiplier effect

The idea that every dollar change -whether it be an increase in spending or a decrease in taxes- creates a greater than one dollar change in the national income.

Classical economics

The idea that free markets regulate themselves.

Revenue

The income received by a government from taxes and other non tax sources.

Tax base

The income, property, good, or service that is subject to a tax.

The government was running a surplus.

The late 1990s marked the first time in 30 years the President and the Office of Management and Budget (OMB) were able to make what announcement regarding the national deficit?

Productive capacity

The maximum output that an economy can sustain over a period of time without increasing inflation.

National debt

The total amount of money the federal government owes to bondholders.

Fiscal policy

The use of government spending and revenue collection to influence the economy.

Tax incentive

The use of taxation to encourage or discourage behavior.

Property tax

The value of a property.